COUNTRY PROFILE

Bosnia and Hercegovina (BiH) Croatia

Our quarterly Country Reports on Bosnia and Hercegovina and Croatia analyse current trends. This annual Country Profile provides background political and economic information.

1997-98

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October 10, 1997 Contents

Bosnia and Hercegovina (BiH)

3 Basic data

4 Political background 4 Historical background 6 Constitution and institutions 7 Political forces 9 International relations and defence

11 The economy 11 Economic structure 11 Economic policy 13 Economic performance

14 Resources 14 Population 15 Education and Health 16 Natural resources and the environment

16 Economic infrastructure 16 Transport and communications 17 Energy provision 18 Financial services 18 Other services

19 Production 19 Industry 20 Mining and semi-processing 20 Agriculture and forestry 21 Construction

21 The external sector 21 Merchandise trade 23 Invisibles and the current account 23 Capital flows and foreign debt 24 Foreign reserves and the exchange rate

25 Appendices 25 Sources of information 26 Reference tables

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Croatia

29 Basic data

32 Political background 32 Historical background 34 Constitution and institutions 35 Political forces 36 International relations and defence

37 The economy 37 Economic structure 38 Economic policy 39 Economic performance

40 Resources 40 Population 41 Education and health 42 Natural resources and the environment

42 Economic infrastructure 42 Transport and communications 43 Energy provision 44 Financial services 45 Other services

45 Production 45 Industry 46 Mining and semi-processing 46 Agriculture, forestry and fishing 47 Construction

48 The external sector 48 Merchandise trade 50 Invisibles and the current account 51 Capital flows and foreign debt 51 Foreign reserves and the exchange rate

53 Appendices 53 Sources of information 54 Reference tables

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Bosnia and Hercegovina (BiH)

Basic data

Land area 51,129 sq km (21% arable, 10% pasture and 46% forest)

Population 4.4m according to the last census, in 1991; estimated at 3.2m in 1996.

Main towns Population in ’000, 1991 (wartime upheaval has brought considerable changes)

Sarajevo 526 Banja Luka 195 Zenica 146 Tuzla 132 Mostar 126 Prijedor 112

Climate Continental in Bosnia and parts of Hercegovina; sub-Mediterranean in south- ern Hercegovina.

Weather in Sarajevo Hottest month, July, 18-23°C; coldest month, December, 0-2°C; wettest month, June, 110-115 mm average rainfall; driest month, December, 20-70 mm average rainfall;

Languages Bosnian, Serbian, Croatian (which are almost identical)

Measures Metric system

Currency The Bosnian dinar (BiHD), which is fixed against the D-mark at a rate of BiHD100:DM1, is used in Muslim-controlled parts of the Federation of BiH; the Yugoslav dinar (YuD) is used in the Republika Srpska; and the Croatian kuna (HRK) in Croat-controlled parts of the Federation of BiH. The D-mark is used throughout BiH.

Time 1 hour ahead of GMT

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 4 Bosnia and Hercegovina (BiH): Historical background

Political background

Historical background

Ottoman and Slav tribes settled in the territory of modern Bosnia and Hercegovina (BiH) in Austro-Hungarian rule the sixth and seventh centuries. In the Middle Ages the area experienced peri- ods of Byzantine, Croatian, Serbian and Hungarian authority, as well as periods of independence under native Bosnian princes. In the 15th century Bosnia was incorporated in the Ottoman Empire, and it remained under Turkish rule until 1878, when it was placed under Austro-Hungarian control. During the Turkish period much of Bosnia’s population converted to Islam, contributing to the country’s complex profile in the modern era: by the 19th century the popu- lation was divided among three main ethnic or religious groups, Orthodox Serbs, Catholic Croats and Muslims, who were increasingly forced to assert their own identity in the face of competition for their allegiance from their Serb and Croat neighbours. Serbian aspirations to Bosnian territory, and resent- ment at Vienna’s annexation of the province in 1908, provided the spark for the First World War, when a young Bosnian Serb nationalist assassinated the Austrian archduke, Franz Ferdinand, in 1914, leading to an Austrian attack on Serbia. The war ended with the collapse of Austria-Hungary and the formation of a united Yugoslav state (called the Kingdom of Serbs, Croats and Slovenes until 1929), including Bosnia.

Bosnia in Yugoslavia In the Kingdom of Yugoslavia, Muslim political leaders managed, by reaching an accommodation with the dominant Serbian rulers, to achieve some limited influence but the state was racked by ethnic divisions, especially between Serbs and Croats. From 1929 Bosnia was divided among administrative units in neighbouring Serbia, Croatia and Montenegro. Following the Axis occupation of Yugoslavia in 1941, BiH was incorporated in a German-puppet Independent State of Croatia (NDH), under the Croatian fascist Ustasha movement. The war magnified inter-ethnic tensions in BiH to a level not hitherto seen, in an upsurge of slaughter which was contained only by the takeover of the pan- Yugoslav, Communist-dominated partisan movement in 1945. BiH became one of the six constituent republics in Communist Yugoslavia, and, in 1968, its Muslims were recognised as one of the country’s six constituent nations.

The demise of Yugoslavia The victories of nationalist parties in the first free elections in Yugoslavia in and descent into war 1990 set the country on the path to dissolution, with particularly damaging consequences for multi-ethnic BiH. Following the EU’s recognition of the inde- pendence of Slovenia and Croatia in January 1992, two-thirds of BiH’s popu- lation—mainly Croats and Muslims, as Serbs mostly boycotted the poll—voted for Bosnian independence in a referendum ending on March 1, 1992. Inde- pendence was declared on April 6, 1992, and was swiftly recognised by the EU and other states.

Most of BiH’s Serb population rejected the move, and, having already carved out a number of Serb-controlled regions, with armaments left by the former Yugoslav army (JNA) unleashed a war which was to rage for three and a half years. The war eventually pitted each constituent nation against the other two

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and led to the forced uprooting (“ethnic cleansing”) of hundreds of thousands of people, widespread atrocities and slaughter. Croats in Hercegovina in July 1992 proclaimed their own para-state of Herceg-Bosna, following which fight- ing erupted between Croats and Muslims. This lasted until early 1994, when the USA brokered a peace deal, setting up a Muslim-Croat Federation of BiH on the territory they controlled. The political goal of the Bosnian Serb and Croat leaders, supported by Serbia and Croatia respectively, was to establish ethni- cally homogenous territories which would eventually join Serbia and Croatia.

An uneasy peace The large-scale humanitarian, diplomatic and military involvement of the international community eventually steered the warring parties to a peace settlement, brokered in Dayton, USA, in November 1995. The agreement fol- lowed NATO air attacks on Bosnian Serb positions in August and September 1995 and a successful Croatian offensive against the Serbs in Croatia and BiH, and was made possible by considerable pressure on Serbia and Croatia to bring their Bosnian co-nationals into line. As well as bringing peace, the Dayton accord set out the contours of BiH’s new constitutional arrangements, as well as the conditions of international engagement in the country’s post-war recon- struction efforts. The country was divided into two entities, the Croat-Muslim federation and the Republika Srpska (RS).

By June 1996, under the auspices of a 60,000-strong NATO-led force, the mili- tary aspects of the peace process were largely implemented. However, the im- plementation of Dayton’s civilian aspects, containing a concept for the reintegration of the country, has been beset with obstacles and has largely remained unfulfilled. Elections to bodies at the republic and entity level were held, under international pressure and supervision, in September 1996, and local elections were held in September 1997. Thus at one level progress in establishing the institutions of the joint state has been made. However, real cooperation between the still dominant nationalist parties has been slight and grudging, while progress on the ground, in terms of the return of refugees, freedom of movement and the arrest of indicted war criminals, has been mini- mal. Not only has there been considerable resistance to reintegration by the RS, but Muslim- and Croat-controlled areas of the federation also remain effec- tively under separate administrations, making for an enduring three-way divi- sion of the country, which renders uncertain the prospects for BiH’s survival as a unified state.

International pressure These difficulties have prompted the international community, since a meet- ing to discuss BiH in Sintra, Portugal, in May 1997, to step up the pressure for Dayton’s implementation. This has included international support for the president of the RS, Biljana Plavsic, in her struggle with Serb hardliners grouped around her predecessor, Radovan Karadzic, who has been indicted for war crimes. It is widely expected that the maintenance of peace and at least some level of security in BiH, not to mention the implementation of Dayton, will depend on close international involvement for some time to come.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 6 Bosnia and Hercegovina (BiH): Constitution and institutions

The war in Bosnia

November 1990: The nationalist parties of the Muslims, Serbs and Croats win the first post-communist parliamentary elections. They form a coalition, with the president of the Muslim Party of Democratic Action (SDA), Alija Izetbegovic, as president of the collective presidency. March 1992: A referendum, boycotted by a majority of Bosnia’s Serbs, opts for BiH’s independence. April 1992: Independence is declared, and the war begins. May 1992: The UN imposes sanctions on Yugoslavia (Serbia and Montenegro) for its involvement in the war. July 1992: The Bosnian Croats declare their para-state of Herceg-Bosna. August 1992: The UN Security Council passes a resolution providing for the dispatch of 4,500 UN troops to facilitate the delivery of humanitarian aid. The former UK foreign secretary, David Owen, and the former US secretary of state, Cyrus Vance, are appointed as peace negotiators. May-June 1993: The Vance-Owen peace plan, envisaging the division of the country into ten autonomous units, is rejected by the Bosnian Serb Assembly. The Muslim-Croat war begins. The UN declares six “safe areas”. February-March 1994: A ceasefire is negotiated, and the mandate of the UN troops is extended to include peace-keeping. The Washington agreement is signed, ending the Muslim-Croat war and setting up the federation. July 1994: The Bosnian Serbs reject a plan proposed by the “contact group” (France, Germany, Russia, the UK and the USA), which would grant 49% of the country’s territory to the federation and 51% to the RS, in a loose union. Fighting resumes. August-September 1995: The Muslim-inhabited “safe area” of Srebrenica falls to the Bosnian Serbs and NATO launches an attack on Bosnian Serb military targets. October-November 1995: A ceasefire is arranged, followed by negotiations for a peace agreement in Dayton, USA. December 1995: NATO replaces the UN troops in BiH. September 1996: The first post-war elections end in victory for the nationalist parties.

Constitution and institutions

Weak joint institutions According to the constitution set up under the Dayton agreement, the Republic of BiH consists of two entities, the Federation of BiH and the RS, in a loose state in which most powers are devolved to the two entities. The joint political institutions of BiH consist of a bicameral parliamentary assembly, two-thirds of whose representatives are elected from the federation and one-third from the RS; a three-member collective presidency, with one representative elected from the RS and two (one Muslim and one Croat) from the federation; a central government (Council of Ministers), whose members are chosen by the entities, with very limited powers—including foreign affairs, foreign trade and eco- nomic relations and communications. Each minister has two deputies, one from each of the other two peoples.

The central bank is governed by a governing board, consisting of a governor named by the IMF for a six-year term and three other members appointed by the presidency. The Constitutional Court is BiH’s highest judicial body. Of its

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nine judges, four are selected by the federation’s House of Representatives, two by the RS People’s Assembly and three by the president of the European Court of Human Rights. The first consultative session of the Constitutional Court was held on May 23, 1997, but the court has yet to become operational.

The structure of government in Bosnia and Hercegovina

Republic of BiH Three-member presidency, representing Council of ministers (government) the three constituent peoples Bicameral parliament Federation of BiH Republika Srpska Indirectly elected president Directly elected president Bicameral parliament People’s Assembly Ten cantons and 73 municipalities 64 municipalities

In practice, the functions of the central institutions have been even less than envisaged by the constitution, as the necessary trust and political will have been lacking. In most matters, power continues to be exercised autonomously by the entities.

A disunited federation The Federation of BiH has its own president, bicameral parliament and govern- ment. It is further divided into ten cantons, each having its own governor and government, as well as a cantonal assembly. The federation has not functioned as a united entity and has remained divided between areas under Muslim and Croat control, mainly owing to the resistance of the Hercegovina Croats to any real integration.

The RS is organised as a unitary, centralised entity and is not divided into cantons. It has its own constitution, assembly and directly elected president.

Political forces

Nationalist parties BiH’s political life has since the demise of communism been dominated by dominate— three ethnically based parties, the Muslim Party of Democratic Action (SDA), the Serbian Democratic Party (SDS) and the Croatian Democratic Union (HDZ). The SDA and the SDS developed as indigenous political forces, while the HDZ was formed as a branch of the party in Croatia of the same name. Each party has pursued a narrow nationalist agenda—the main difference being the extent to which they have promoted ethnic exclusivity.

The SDA has tended to be the most tolerant in pursuing its political goals, generally seeing the interest of BiH’s Muslims as lying in an integrated state.

The Bosnian HDZ has been polarised between elements favouring the reinte- gration of BiH and a (generally dominant) wing reluctant to give up the ulti- mate goal of joining Croatia. The Bosnian HDZ is beholden to its masters in Zagreb and therefore ultimately to Zagreb’s policy towards BiH.

Divisions within the SDS in 1997 led to a split between the RS president, Mrs Plavsic, and her supporters centred in the north-west Bosnian town of Banja Luka, and hardliners based in the RS’s capital, the village of Pale near

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Sarajevo, grouped around the RS representative on the collective presidency, Momcilo Krajisnik, and the former RS president and indicted war crimes sus- pect, Mr Karadzic.

—and the opposition is at With political divisions drawn primarily along ethnic lines, the majority of the a disadvantage electorate tends to vote for the main ethnically based parties, which claim to be the most steadfast defenders of the particular interests of their own ethnic group. Thus, so long as tension between the three constituent nations remains high, non-ethnically based parties operate at a disadvantage. The most promi- nent of these are the Social Democratic Party of BiH and the Union of Social Democrats of BiH, which fought the parliamentary elections of September 1996 as part of a joint list. The only large town where non-ethnically based parties have managed to hold political control is the north-eastern town of Tuzla, in the Muslim-controlled part of the federation. The Party for BiH, formed by Haris Silajdzic, a leading SDA figure who broke away in protest at its exclusively Muslim stance, has remained close to the SDA; Mr Silajdzic is co- chairman of the BiH Council of Ministers.

Election results, Sep 1996 (seats won) BiHa Federationb RSc seats seats seats Party of Democratic Action (SDA) 19 78 14 Serbian Democratic Party (SDS) 9 – 45 Croatian Democratic Union (HDZ) 7 35 – Joint Listd 3 11 2 Party for BiH 2 11 2 Alliance for Peace and Progress 2 – 10 Serbian Radical Party – – 6 Democratic Patriotic Bloc – – 2 Croatian People’s Union – 3 – Croatian Party of Right – 2 – Serbian Party of Krajina – – 1 Serbian Patriotic Party – – 1 Total 42 140 83

a BiH House of Representatives. b House of Representatives of the federation. c RS People’s Ass- embly. d The Joint List comprised the Social Democratic Party of BiH; the Union of Social Democrats of BiH; the Croat Peasant Party; the Muslim Bosnian Organisation; and the Republican Party.

Source: Organisation for Security and Cooperation in Europe (OSCE).

Some opposition parties are themselves ethnically based. These include the Croat Peasant Party, which is also connected with a party of the same name in Croatia, but which has opposed the HDZ’s obstruction of the reintegration of the country and fought the September 1996 elections as part of the Joint List. Opposition parties have been stronger in the RS. In the September 1996 elec- tions the Alliance for Peace and Progress, led by the Socialist Party of the RS, an offshoot of the Socialist Party of Serbia led by the then Serbian (now Yugoslav) president, Slobodan Milosevic, and the Democratic Patriotic Bloc, based among opponents of SDS rule in Banja Luka, mounted a serious challenge to the SDS. The extreme nationalist Serbian Radical Party of the RS, led by the former

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paramilitary leader Vojislav Seselj, is also an increasing force in RS politics. Following Mrs Plavsic’s split with the SDS, political polarisation in the RS is likely increasingly to reflect the division between Banja Luka and Pale.

Key political figures in BiH

Alija Izetbegovic: Muslim representative in the collective presidency, of which he is chairman. A dissident under Communist rule who was imprisoned for his work as an Islamic activist, he led the SDA from its inception before the 1990 free elections. He was BiH president throughout the war. Radovan Karadzic: Former RS president and an indicted war crimes suspect. As leader of the SDS, he initially joined the SDA and the HDZ in a coalition government, before leading the Bosnian Serbs’ war effort. Although barred from holding formal office since Dayton, he has continued to wield considerable behind-the-scenes power in the RS. Momcilo Krajisnik: RS representative in the collective presidency. Previously the RS parliament’s speaker, he is regarded as a hardliner with a pragmatic streak. He remains close to Mr Karadzic. Biljana Plavsic: President of the RS. Formerly a loyal deputy to Mr Karadzic, her anger at the widespread corruption of the RS elite has brought her into opposition. Despite her record as a hardliner, the international community has supported her as the best hope for a more moderate approach in the RS. Haris Silajdzic: Co-chairman of the Council of Ministers, with Boro Bosic, a Serb. Formerly a leading SDA figure, he broke away in protest at its exclusively Muslim profile and formed the Party for BiH. He has since mended fences with the SDA, with which he cooperates closely. Vladimir Soljic: President of the Federation of BiH. Formerly a federation defence minister, he is widely regarded as a hardline defender of Croat interests. Kresimir Zubak: Croat representative in the collective presidency. Formerly president of the federation, he has always championed Croat interests but is widely regarded as a relative moderate in the Bosnian HDZ.

International relations and defence

Difficult regional relations Relations with Croatia and Serbia have been complex and difficult. Both were directly involved in the war, in support of their Bosnian co-nationals, and it has long been suspected that Mr Milosevic and the president of Croatia, Franjo Tudjman, have, since a meeting in 1991, plotted the division of BiH between Serbia and Croatia. As key actors in BiH’s internal affairs, Mr Milosevic and Mr Tudjman played crucial roles in the negotiations leading to the Dayton accord. Since then, their unwillingness to bring pressure on the Bosnian Serb and Croat leaders to cooperate fully in the agreement’s implementation has been a key factor in the slow progress in reintegrating the country.

BiH depends on As BiH grapples with the political and economic challenges of post-war recon- international help struction, it is dependent on the support and involvement of international organisations and foreign powers, notably the USA. Following the Dayton agreement a NATO-led Implementation Force (IFOR) was deployed to oversee the separation of the warring parties, and this later evolved into a scaled-down Stabilisation Force (SFOR). Many aspects of the Dayton agreement remain

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unimplemented and there are some very tense potential flashpoints (notably Mostar, which is divided between areas of Croat and Muslim control, and Brcko, which lies in a corridor linking the western and eastern halves of the RS and which is coveted by the Muslims, pending international arbitration). In such circumstances, the continued presence of international forces beyond the end of SFOR’s mandate in June 1998 is widely regarded as essential to prevent a relapse into war. In addition, international help from the IMF, the World Bank, the UN and agencies, as well as from donor countries, is vital for BiH’s economic regeneration.

The military balance has Since Washington took on the leading role in pushing for peace prior to altered Dayton, the USA has assumed the key role in BiH’s external relations. The Bosnian Muslim leaders have scaled down their relations with Muslim coun- tries, such as Iran, which provided valuable support during the war. However, a point of contention between Washington and Sarajevo has been the help which the BiH Muslims have received from Muslim countries in building their military.

According to Dayton, the entities have separate armed forces. Coordination of their activities is assigned to a Standing Committee on Military Matters, which was formally established in June 1997. The federation’s 45,000-strong armed forces are supposed to unite the Muslim-dominated BiH army and Croat Defence Council units under a single structure. They have been reorganised and equipped by the US-sponsored “Train and Equip” programme, the aim being to create a force strong enough to counter the RS army, which inherited arms from the JNA. However, the integration of the federation’s forces has been limited in practice.

The Muslims are particularly dissatisfied with the division of BiH territory under Dayton and there are persistent reports that they continue to receive arms and training from various Muslims countries, in addition to the US help. With the RS forces said to be increasingly underfunded and demoralised, there are strong fears that only the presence of SFOR is inhibiting the Muslim leaders from launching a new assault on Serb-held territory, which would lead to a rapid Bosnian Serb military collapse and risk forcing Serbia itself to intervene.

Federation defences

The federation is supposed to have a 45,000-strong army, consisting of four corps and 15 brigades. Three of the corps consist mainly of Muslims and one of Croats. There is also one joint “rapid reaction” brigade, with Croat and Muslim battalions based at different locations. The federation’s Defence Law of August 1996 requires that the federation army be fully integrated only after three years. The Ministry of Defence and the General Staff have already been appointed.

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The economy

Economic structure

Main economic indicators, 1996a

Real GDP growth (%) 50 Consumer price inflation (%, year-end) 3 Current-account balance (% of GDP) –26 Foreign debt (% of GDP) 115 Exchange rate (BiHD:DM) 100b

a Estimates. b Actual.

Sources: National statistics; World Bank.

Before the war, 51% of BiH’s GDP originated in industry, mining and forestry, while some 10% came from agriculture. BiH has a variety of mineral resources, both coniferous and deciduous forests and hydroelectric power. More than half of total employment was in the large state-owned industrial enterprises, which were also the main exporters. The share of trade and tourism in GDP was 16%. BiH had a strong civil engineering sector, accounting for 7% of GDP, which was also a substantial earner of foreign currency.

The war destroyed much of the country’s industrial base and brought industrial activity to a virtual halt. It also had a devastating effect on agriculture, partic- ularly on livestock production, which was severely affected by the massive population displacements. With the revival in economic activity since the ad- vent of peace, industry’s share of GDP in 1996 was 20.7% in the federation and 32.6% in the RS; agriculture’s share was 12.6% in the federation and 16.4% in the RS.

Economic policy

Economic management Given the continued effective three-way division of BiH, the management of has been fragmented the economy remains fragmented. This fragmentation is reflected in the fact that four currencies circulate in BiH: the BiH dinar in Muslim-controlled areas; the Croatian kuna in Croat-controlled areas; the Yugoslav dinar in the RS; and the D-mark as the universal currency throughout the country. Although agree- ment in principle on the establishment of a single currency, the convertible mark, has been reached under heavy international pressure, its introduction has been delayed.

The wartime stress on The three areas coped with the effects of the war in different ways. stabilisation— • The authorities in Muslim-controlled areas exercised the greatest degree of independence in economic policy-making. After the introduction of the new BiH dinar in 1994, fixed to the D-mark at a rate of 1:100, they pursued prudent macroeconomic policies, stabilising the currency and bringing inflation under control.

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• The economy in Croat-controlled areas has to a very considerable extent been integrated with that of Croatia. Price stability was achieved following the implementation of Croatia’s stabilisation programme at the end of 1993.

• Similarly, the RS benefited when Yugoslavia initiated its stabilisation pro- gramme in 1994, although it returned to higher inflation when Serbia imposed an economic embargo on the RS later that year, in an effort to pressurise the Bosnian Serb leadership into a more compromising approach to a settlement for BiH.

Following the establishment of the federation, efforts were begun to synchro- nise and integrate the economic systems of the two federation partners, focus- ing initially on establishing a unified payments system and trade. Progress has been slow. Macroeconomic stability has, however, been maintained. In Muslim-controlled areas this was achieved by strict fiscal policies and a mone- tary policy based on the principles of a currency board.

—gave way to an emphasis With the end of the war, the emphasis shifted to reconstruction, following the on reconstruction— enormous wartime destruction. In this effort, BiH has depended on assistance from the international community. At an international donors’ conference in Brussels in April 1996, $5.1bn was pledged for a three-to-four-year period to meet critical needs, especially the rebuilding of infrastructure and housing, the restoration of basic health and education services, care of the most vulnerable sections of the population, institution-building and for kick-starting prod- uction.

An important element in the reconstruction effort in BiH is its contribution to the overall consolidation of peace and reintegration in the country. For this reason, there has been considerable emphasis on rebuilding infrastructure, with its intrinsically integrative character. In addition, it is hoped that eco- nomic revival and the restoration of normal economic life will provide a greater incentive for normalisation at the political level. For this purpose, the promotion of employment, as a means of giving the population a stake in the country’s future, is of particular importance.

—and on providing the In 1997 the international community’s emphasis switched to creating the basis for sustained conditions for sustained recovery beyond the immediate post-war reconstruc- recovery tion. To this end, the so-called Quick Start package was formulated, whose adoption by the BiH Assembly in June 1997, following intense international pressure, marked a milestone in creating a countrywide macroeconomic policy- making framework. The package includes a set of basic laws on the creation of a central bank, on foreign debt, foreign trade, customs tariffs and customs policy and the budget, covering the whole country. The implementation of the package will take time and various transitional arrangements, including the common convertible mark, have been formulated. The maintenance of macro- economic stability remains a high priority. To this end, the new currency is to be based upon a currency board and the financing of fiscal expenditure through domestic banks has been ruled out.

Economic transition is While promoting post-war reconstruction, the IMF and the World Bank have also needed recognised that this will not be sufficient to provide for a long-term, sustainable

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economic recovery. BiH must also undertake all the reforms necessary for a transition to a market economy; structural unemployment, or underemploy- ment, was a problem before the war, and the mere reconstruction of pre-war industries would not provide a solution to the country’s long-term economic difficulties. Most enterprises in both entities remain state-owned and privatis- ation is high on the government’s agenda. Managing the reconstruction effort remains the key task for the present but the BiH authorities have also embraced the need for far-reaching structural reform, as impressed upon them by the international community.

The budget The Dayton accord envisages the reorganisation of the fiscal system both in the two entities and at the level of the central government. The central govern- ment is dependent on the entities and the international community for its revenue. Having no independent tax revenue of its own, its finances will be precarious for some time. Economic recovery has been accompanied by strong growth in both revenue and expenditure. This was possible because almost 40% of state public expenditure in 1996 was financed by international donors. All parts of the country have operating budgets that are largely balanced on a cash basis. (See Reference tables 1 and 2 for data on government finances and money supply.)

Economic performance

Recovery has been The war brought near total economic collapse. By 1995 GDP had plummeted reconstruction-led to an estimated $2.1bn, compared with $8.6bn in 1991, while GDP per head dropped from $1,979 to $501 over the same period. Much industrial capacity was destroyed, infrastructure suffered extensive damage and previous supply and trade channels were disrupted or eliminated.

Activities related to the reconstruction effort brought rapid GDP growth of an estimated 50% in 1996, from a very low base. Reconstruction will be the main motor for growth for some time to come. GDP growth, while still substantial, has probably slowed in 1997, partly because of delays in the release of foreign reconstruction aid as a result of international pressure to force the passing of the Quick Start measures. Sustained growth over the longer term will depend on maintaining stability and restoring international confidence in the country, so that foreign investment can be attracted, and on success in implementing far-reaching economic restructuring.

Prices have remained stable during most of the period since the end of the war. In September 1997 the government increased tariffs on imported goods to protect domestic production, which is likely to push the inflation rate up. (See Reference tables 3 and 4 for historical data on GDP and prices.)

Unemployment remains Despite a sharp increase in the number of employed, the rate of unemploy- high— ment has remained very high, at over 50% in mid-1997. Job generation is directly related to the intensity of economic reconstruction, which has pro- ceeded at a slower pace than initially expected.

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—but wages have increased Average wages nearly tripled in the federation between the end of the war and the first quarter of 1997, reaching a monthly DM258, while the increase in the RS was much more modest, reaching some DM70. (Reference tables 5 and 6 give historical data on earnings and employment.)

Average net wages Federation of BiH Republika Srpska BiHD DMa YuD DMb 1996 Feb n/a n/a 96 27 May 15,764 158 155 43 Aug 20,638 206 218 61 Nov 22,348 223 241 67 1997 Feb 24,436 244 256 71 May 26,109 261 n/a n/a

a BiHD100:DM1. b YuD3.6:DM1.

Sources: Statistical Bureau of the Federation of BiH; Statistical Bureau of the RS.

The benefits of the economic recovery are reflected in the decrease in the proportion of the population dependent on humanitarian aid—down from nearly 90% at the end of the war to around 50% in mid-1997. The most vulnerable section of the population are pensioners. Average pensions in both entities are far below pre-war levels and are paid irregularly; the suicide rate has increased among this segment of the population. Widespread poverty will remain, as humanitarian assistance to the region is scaled down and the effects of economic recovery take time to be felt.

Recovery has been uneven The recovery has been territorially uneven, the federation doing better than the RS, which suffered sanctions for its non-compliance with peace agreement provisions. In addition, regional differences exist within the federation itself.

Resources

Population

The population dropped The population of BiH is estimated to have declined by more than 1m since the in the war— last census of 1991, when it totalled 4.36m. The UNHCR has estimated that around 250,000 were killed, while others fled to escape the war. In addition, many (the UNHCR estimate is as high as 200,000-300,000) people settled in BiH from other parts of former Yugoslavia, including Serbs from Croatia in the RS and Muslims from Serbia in the federation. The current population of the federation is estimated by the World Bank at 2.3m, with around 900,000 in the RS.

BiH had a relatively young population before the war. In 1991 some 27% of the population were under 16 years old, and only 6% were aged over 65. This was the combined result of fairly high birth rates and declining mortality rates. These rates moved in an opposite direction during the first two years of war: birth rates were halved, while mortality rates almost doubled. Rough estimates

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Bosnia and Hercegovina (BiH): Education and Health 15

indicate that birth rates have been slowly picking up since the end of the war and that mortality rates are declining sharply.

—and there were The war caused major population upheavals. These forced migrations were large-scale internal characterised by significant movements from rural to urban areas. Before the displacements war, 62% of the population lived in towns with more than 50,000 inhabitants, while 38% resided in villages. During the war, the inflow of refugees into the towns was massive, to the point that the peacetime population in some towns has almost doubled (for example Tuzla after the fall of the of Srebrenica safe area in August 1995). This has put a great strain on infrastructural, housing, health and education services in the towns. At the same time large areas, particularly in the RS and central Bosnia, are now underpopulated. The popu- lation movements have also affected the composition of the labour force, both in terms of skills and age distribution, which will have long-lasting implic- ations for future economic development.

Population by ethnic composition, 1991

Total Muslims Serbs Croats Othersa ’000 4,363 1,906 1,369 755 333 % of total 100 43.7 31.4 17.3 7.6

a Including people who declared themselves as Yugoslavs.

Source: Statisticki godisnjak Jugoslvije.

Education and Health

The education system has BiH’s fairly highly developed pre-war education system, consisting of 642 pri- suffered— mary schools, 243 secondary schools and four universities, suffered extensive damage during the war. Some 70% of educational buildings were either de- stroyed or damaged and the number of teaching staff shrank drastically, partic- ularly in higher education. The wartime brain drain is likely to have severe economic consequences for some time to come. Nevertheless, teaching con- tinued in most areas throughout the war, albeit irregularly and at lower stand- ards than prior to the war.

The international donors have promoted training programmes with an empha- sis on the skills needed in the changed economic environment. The education system and its funding are being reorganised, with an emphasis on decentral- isation, including of higher education.

—as has the health service Before the war, the health service employed about 4.5% of BiH’s workforce and was technologically quite advanced. Health expenditure per head reached $245 in 1990. There were 5.8 beds and 2.6 doctors per 1,000 inhabitants, comparing favourably with most other communist countries.

The war has hit healthcare provision hard. Only half of the pre-war number of hospital beds was available in 1996 and three-quarters of medical equipment is estimated to have either been destroyed or damaged beyond repair, or is out- dated. The total number of medical staff halved, with the number of dentists falling the most. In Zenica, for example, the ratio of general practitioners per

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 16 Bosnia and Hercegovina (BiH): Natural resources and the environment

100,000 population fell from 191 in 1991 to 72 in 1996. Public health has deteriorated, with a high incidence of infectious diseases. In addition the war has left over 30,000 invalids.

Post-war challenges include physical rehabilitation, the transformation of the system to conform more closely with modern practices and the organisational change imposed by the new territorial and political make-up of the country. Access to healthcare facilities among individuals and communities is unlikely to be as equal as before the war.

Natural resources and the environment

BiH’s 51,129 sq km of territory is largely mountainous, with 56.8% of it at least 500 m above sea level. The flora and fauna of the forested areas are rich in variety. The climate, a combination of continental climate in Bosnia and parts of Hercegovina and sub-Mediterranean in southern Hercegovina, favours a range of crops, from fruits, rapeseed oil, maize and wheat in Bosnia to citrus fruits, grapes, vegetables and tobacco in Hercegovina.

BiH boasts some of the finest scenery in the region, with unspoiled mountains, lakes and river canyons. It also includes an 8-km stretch of Adriatic coast. However, the environmental record of the country’s centres of heavy industry, particularly in Zenica and Tuzla, is poor. In the last eight years before the war, attempts were made to address the problem of environmental degradation.

Economic infrastructure

Transport and communications

Transport links were BiH’s transport system was damaged physically in the war and disrupted by the badly damaged— division of the country. For example, access to the main ports on the Adriatic and the Sava River has been severed for enterprises in Muslim-controlled areas. Much of the country’s 1,030-km rail network (75% electrified) and 21,000 km of roads have been damaged or destroyed.

Significant progress has been made in repairing 2,400 km of roads under an emergency projects scheme, as well as 70 bridges, including the bridges on the border with Croatia. Most of the rail network is ready to resume services, but political obstacles stand in the way. The situation regarding air traffic has been similar, with Sarajevo having the only airport in use for commercial traffic, although Mostar, Banja Luka and Tuzla airports are set to resume operations. Opponents of the peace agreement are reluctant to see a normalisation of transport and communications, fearing it would serve as a catalyst for the wider reintegration process.

—and the The telecommunications system is divided between the three independent com- telecommunications panies in the three ethnic territories, although strong international pressure has network is fragmented brought some progress in restoring telephone links between the entities. The

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Bosnia and Hercegovina (BiH): Energy provision 17

European Bank for Reconstruction and Development (EBRD) has taken respon- sibility for rehabilitating the system, which was fairly well developed, with a high degree of digitalisation. Around 65% of the long-distance network was destroyed during the war and a significant portion of local networks was put out of order. The costs of restoring the sector are estimated at $222m.

The immediate telecommunications priority programme

The priority programme includes:

• an emergency telecommunications project to restore disrupted lines for priority use; • the re-establishment of inter-municipality telecommunications links; • the establishment of a quick roll-out mobile telecommunications network in both entities; • the reorganisation and privatisation of the telecommunications sector.

Energy provision

The electric power system suffered extensive damage during the war: over 50% of generating capacity was put out of operation; 60% of the transmission network and control system was damaged; and the distribution network and many transformer stations also suffered extensive damage. The power system is operated by three regional companies, as opposed to one prior to the war.

The restoration of electricity services has been a priority in the reconstruction effort. However, despite significant progress, many areas of the country are still without a regular supply of electricity. The reconstruction and repair of the three power plants at Mostar, Rama and Bocac will improve the supply of energy in the federation, but cooperation between the entities will be needed to improve both efficiency and the supply of electricity to consumers.

Energy balance, 1996 (m tons oil equivalent) Elec- Oil Gas Coal tricitya Other Total Primary productionb nil nil 0.5 0.4 0.2 1.1 Importsb 1.5 0.5 0.0 0.2 0.0 2.2 Exportsb 0.0 0.0 0.0 –0.1 0.0 –0.1 Primary supplyb 1.5 0.5 0.5 0.5 0.2 3.2 Losses and transfersc –0.1 –0.1 –0.3 –0.5 0.0 –1.0 Transformation outputd 0.0 0.0 0.0 0.2 0.0 0.2 Final consumptionb 1.4 0.4 0.2 0.2 0.2 2.4

a Primary electricity output and imports/exports of electricity are expressed as input equivalents, on an assumed generating efficiency of 33%. b Input basis. c Losses and transfers comprise input to transformation processes (electricity generation, gas manufacture, liquids from coal etc), plus energy industry fuel and losses. d Output basis.

Source: Energy Data Associates.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 18 Bosnia and Hercegovina (BiH): Financial services

Financial services

A central bank has been In line with the Dayton agreement, a single central bank for the whole of BiH established has formally been established, and a Frenchman, Serge Robert, was appointed governor in September 1996. His main brief is to establish a single monetary area for the country, although he has been hampered in this task by disagree- ments over the design of the notes to be circulated as money.

State-owned banks are in The commercial banking sector of BiH consisted in September 1997 of 57 need of rehabilitation banks, 46 of them in the federation and 11 in the RS. Privately owned banks account for 60% of the total number; in the remaining 40% of banks the state is the majority shareholder. Most of the private banks emerged during the war and in its aftermath, either through ownership transformations or as new start-ups.

The bulk of the banking sector is insolvent and burdened by non-performing assets, estimated at 90% of total capital. This is particularly the case with the larger banks, mainly the successors of pre-war banks which engaged in poor lending practices to state-owned enterprises. Typically, these were banks deal- ing with international creditors, the financing of large-scale projects and wholesale trade. They are mostly concentrated in the Muslim-controlled parts of the country. In contrast, private banks tend to have healthy balance sheets but are typically small, with little experience, and cater for regional markets; their capital, in the federation, amounted to DM225m—35.71% of the total— at the end of June 1997.

On the whole, the banking sector is not strong enough to support investment activity on a larger scale. Most banks engage in short-term trade-related activi- ties. The banking system faces a complex process of restructuring and privatis- ation, which the experience of other transition economies suggests will be very difficult, if it is to assume an appropriate role in the kind of market economy BiH is trying to build. This process is critically hindered by the uncertainties surrounding the outcome of the peace process. The EBRD has made a first step towards starting the process by designating two banks in the federation and one in the RS in which it will participate with equity capital.

Other services

The retail sector has undergone changes during the war and in its aftermath. While there were some privately owned shops before the war, the majority were state-owned. However, since then the private sector has come increas- ingly to predominate, as smaller entities have proved better able to adapt. However, the service sector in general remains underdeveloped, and a prolif- eration of small enterprises in the sector since the end of the war in part reflects the slowness with which employment has been generated in other sectors; a large proportion are destined to fail.

Despite its natural beauty, BiH has not been a major tourist destination. It does have the potential to attract skiing holidaymakers (Sarajevo hosted the Winter Olympics in 1984) and it has a short coastline. However, the country’s

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Bosnia and Hercegovina (BiH): Industry 19

continuing instability and undeveloped infrastructure mean that this can only be a hope for the future. Many other potential tourist attractions have been damaged or destroyed in the war. For example, Mostar, with its fine old Turkish town centre and famous bridge, used to be a popular day-trip destination for tourists staying in Dalmatia; the bridge and much of the old town have been destroyed and planned rebuilding will take some time.

Production

Industry

Structure of industry, 1991 (% of total) Capital goods 4.1 Intermediate goods 64.7 Consumer goods 30.8 Other 0.4 Total 100.0 Source: Institute of Economics, Sarajevo.

Main manufactured goods, 1990 (’000 tons unless otherwise indicated) Output Employees (’000) Textiles – 76 Cotton fabric 13 – Knitted fabric 7 – Garments (’000 sq metres) 2,800 – Leather products – 28 Shoes (’000 pairs) 710 – Chemicals – 19 Ammonium nitrate 84 – Ammonium sulphate 13 – Soap & detergent 52 – Machine building – 80 Iron castings 63 – Metals – – Aluminium 89 5 Steel (raw) 1,500 26 Source: World Bank.

Much of industry has been Before the war BiH possessed a reasonably highly developed industrial base, destroyed— with an emphasis on heavy and military industries. Its capacity was also fairly diversified, with textiles, leather and footwear industries, often organised un- der licence, joint venture or other arrangements with foreign partners. Most industrial production was concentrated in large, state-owned enterprises, four of which accounted for 40% of BiH’s foreign currency earnings. Industrial output declined in the 1980s, as former Yugoslavia’s economic crisis worsened. A deterioration in performance in 1990 resulted in massive losses, equivalent to about 36% of BiH’s total output. (See Reference table 7 for historical data on industrial production.)

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 20 Bosnia and Hercegovina (BiH): Mining and semi-processing

Much of BiH’s industrial base was destroyed during the war. There were pockets of continuing production throughout the war, particularly in the textiles, wood-processing, coal mining and military sectors, albeit at a fraction of pre- war capacity utilisation. When the fighting ended, and with the launching of the reconstruction programme, industry began to recover, although in 1996 output only reached just over 10% of the level of 1990. Recovery was strongest in the federation. (See Reference table 8 for industrial production by sector.)

—and the remainder is in Apart from physical destruction, much of the surviving capacity is obsolete, need of restructuring there is a lack of working capital, supply chains have in many cases been broken and markets lost. The industrial sector was in need of major restructur- ing even before the war. The question of the survival prospects for large enter- prises is proving to be a contentious issue for the government. There is a strong lobby arguing in favour of restoring some of these enterprises, as a means of significantly boosting employment. This seems unlikely to happen, however, and the emphasis will instead be on breaking them down into smaller units, whose survival will be determined by the market.

Mining and semi-processing

Mining is a key sector— Mining has traditionally been one of the most important industrial activities in BiH, accounting for some 9% of total industrial output in 1990. BiH is rich in coal, iron ore, zinc, bauxite, lead, salt and china clay. The largest reserves of poorer quality brown coal and lignite are concentrated in Bosnia, while the largest coal deposits in Hercegovina lie around the Mostar and Gacko areas. Around 30 coal mines produced 17.9m tons of coal in 1990, which was used for both heating and power generation.

—but production was hit During the war, coal production dropped to 1.5m tons. Much mining equip- by the war ment was destroyed or removed and all mines suffered from a lack of mainten- ance. The emergency recovery programme initiated by the international community helped restore the production capacities of some of the lowest-cost mines in need of relatively minor investment. However, production in many coal mines is unlikely to recommence in the medium term.

Political obstacles are a The extraction and processing of base metal continued throughout the war, problem although at a limited capacity. In order to restore production to its pre-war levels, a key priority is to remove political obstacles. The territorial division of the country has, in many cases, left extraction and processing capacities on different sides of the inter-entity border. A further problem for metals extrac- tion is the uncertain future of the processing capacities.

Agriculture and forestry

Good agricultural land is Agricultural land accounts for nearly half the total area of BiH, with a further scarce— 40% consisting of forest land. Good agricultural land is scarce and the sector as a whole was neglected in the period after the Second World War. Only one- third of the country’s food requirements was met by local production. This was

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Bosnia and Hercegovina (BiH): Construction 21

concentrated on small farms, which, by modern agricultural standards, were relatively backward.

—and the war caused The war severely disrupted food and livestock production and upset the exist- much destruction ing system for organising production and distribution. Distribution has also been disrupted by the damage to infrastructure. The BiH government has esti- mated that some $800m would be needed to restore BiH’s agricultural sector. Unlike the federation, in which most of the larger towns are located, the RS is self-sufficient in food production, since most of the arable land is located on its territory.

Much forest area was destroyed during the war and the risk of land mines will prevent the exploitation of the country’s forests for a long time to come.

Construction

Construction has traditionally been an important sector and before the war was a foreign exchange earner. Since the end of the war the enormous scale of the reconstruction challenge has meant that the construction sector has been one of the key engines of growth. After a strong recovery in 1996, however, activity appears to have declined somewhat in the first half of 1997, as inter- national donations slowed. However, the importance of the sector in boosting growth in the short to medium term will remain. The structure of the sector has altered since the end of the war, with the emergence of numerous small, private building contractors. The sector depends almost entirely for its impetus on the international reconstruction aid effort.

The external sector

Merchandise trade

Foreign trade by sector, 1996 (% of total unless otherwise indicated) Main exports Main imports Semi-finished industrial products 23.9 Machinery & transport equipment 25.3 Raw materials 26.4 Food 25.1 Miscellaneous manufactured products 19.0 Semi-finished industrial products 17.0 Transport & machinery 25.4 Chemicals 10.7 Other 5.3 Miscellaneous manufactured products 8.8 Total ($ m) 336 Other 13.1 Total ($m) 1,882 Sources: World Bank; BiH Institute of Statistics.

Imports have increased Before the war BiH had a merchandise trade surplus, with exports amounting rapidly— to some 15% of GDP. However, wartime disruption of economic activity halted virtually all export activity until 1994. The start of the reconstruction pro- gramme brought about a rapid increase in trade in 1996, albeit from a very low base. Imports, particularly of consumer goods and fuels, increased several times

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 22 Bosnia and Hercegovina (BiH): Merchandise trade

to an estimated $1.9bn, including imports needed as part of the international aid programme. It is estimated that consumer goods constitute more than half of total imports, as the slow revival in economic activity keeps imports of raw materials and intermediates down.

—and exports more slowly The pick-up in exports was more modest, estimated at around $336m in 1996, as domestic production capacity remained limited and firms faced the problem of finding markets for their goods. By contrast with imports, the composition of exports is largely concentrated in raw materials and intermediates. Wood and semi-finished wood products are the most important export commodity, since this sector was spared much of the devastation suffered by the rest of industry.

The trade deficit will be A significant percentage of both imports and exports across the “soft borders” wide for some time with Croatia and Serbia is not recorded in the official statistics, so that the available data are of only limited use. Most of the recorded trade is with Croatia, Serbia and Slovenia, traditionally important markets for BiH, followed by Italy, Germany and Austria. In the short term, as the economy experiences the initial phase of recovery from near total collapse, rising imports and a wide trade deficit are inevitable, as exports will take longer to recover. The revival of BiH’s export potential is contingent on many factors, while import needs will remain significant in the medium term. This is likely to put a constant strain on the balance of payments. A proper assessment of the true scale of the external imbalance and its policy implications will be possible only when foreign assistance through the reconstruction programme winds down.

Main trading partners, 1996

Exports to: % of total Imports from: % of total Federationa Croatia 30.8 Croatia 24.9 Slovenia 16.4 Slovenia 19.3 Germany 14.4 Italy 15.6 USA 12.3 Germany 12.3 Italy 10.1 Austria 4.1 Austria 3.1 USA 1.1

a Detailed analysis for the RS is not available to the World Bank; 82% of its total foreign trade is conducted with Yugoslavia; other major trade partners include Croatia, Slovenia, Russia and Bulgaria.

Source: World Bank.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Bosnia and Hercegovina (BiH): Invisibles and the current account 23

Invisibles and the current account

Current account, 1995 ($ m) Merchandise exports 152 Merchandise imports –1,082 Trade balance –930 Net services –23 Net income –183 Net transfers 1,002 Current-account balance –134 Source: IMF estimates.

The trade deficit, which reached an estimated nearly 50% of GDP in 1996, is being financed by foreign aid as well as by remittances from abroad. The current-account deficit increased from an estimated 20% of GDP in 1994-95 to 26% (excluding official transfers) in 1996, mostly as a result of the widening of the trade deficit and the accumulation of arrears on external interest obliga- tions. With the trade deficit likely to remain wide for the time-being, and with the service sector unlikely to provide a significant source of income in the near future, BiH will rely for some time to come on remittances from émigrés to redress the external balance and prevent the current-account deficit from opening up too much. (See Reference table 9 for historical data on balance of payments.)

Capital flows and foreign debt

BiH inherited a substantial external debt from former Yugoslavia, which has been virtually unserviced since independence. In 1996 the outstanding exter- nal debt, including arrears, was estimated at 115% of GDP. The largest part of the total debt—some $1.1bn—was to the London Club of commercial credi- tors. Owing to the indulgence of the international community, outstanding arrears to both the IMF and the World Bank were cleared in 1995 and 1996 respectively, which paved the way for a normalisation in relations with the external creditors. Negotiations with the London Club in July 1997 ended in the reduction of the total debt and rescheduling on favourable terms of the $404m debt for which BiH assumed responsibility. Some $254m is to be paid when the country’s GDP reaches a level of $2,800 per head and is maintained at this level for two consecutive years; the remaining $150m is to be paid over 20 years, with a seven-year grace period. A similar arrangement is expected with respect to debts owed to the Paris Club of official creditors. This will provide for cash-flow relief as well as debt relief, so that the creditworthiness of BiH may be restored and the inflow of foreign capital encouraged. This is important, since the financing needs of the country will remain significant in the medium term.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 24 Bosnia and Hercegovina (BiH): Foreign reserves and the exchange rate

Foreign reserves and the exchange rate

Net inflows on a cash basis, primarily due to receipts from transfers and serv- ices, increased in the second half of 1996 and continued to do so into 1997, resulting in an increase in the gross official reserves of the central banks of both BiH and the RS. BiH’s total foreign currency reserves were estimated to provide 3.2 months of import cover in 1996.

The BiH dinar is linked to the D-mark at a rate of BiHD100:DM1. As for foreign exchange policy, exporters are required to repatriate foreign exchange proceeds from exports within 60 days. In addition, a portion of export earnings—15% in the federation and 20% in the RS—must be surrendered in exchange for dom- estic currency. In the federation, the surrender requirement extends to import- ers, who are required to make 10% of total sales in BiH dinars.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Bosnia and Hercegovina (BiH): Sources of information 25

Appendices

Sources of information

National statistical sources There is no national statistical source for the country as a whole. The Federation Institute of Statistics publishes a monthly report on major economic indicators for the federation, Statisticki podaci o privrednim-gospodarskim i drustvenim kretan- jima. However, not all of the reported indicators cover the whole territory, since the statistics office in Mostar (formerly the Statistics Office of the Croatian Republic Herceg-Bosna) does not share all information pertaining to Croat- controlled areas. Moreover, data provision from Muslim-controlled areas is not comprehensive and there is a problem of significant underreporting, partic- ularly on foreign trade. The RS has its own Statistics Bureau, which does not share any information with the Federation Institute of Statistics. The reliability of its data is also questionable. Likewise, the Federation Employment Bureau reports data for Muslim-controlled territory only.

The National Bank of BiH has been undergoing a transformation in order to comply with the provisions of the peace agreement on the central bank and no official publication is yet available.

International statistical The IMF and the World Bank are the only sources of aggregate statistics on BiH. sources In their data collection, both institutions rely only partly on the local statistical sources, combining them with data collected directly from government bodies and estimates by their own experts. The IMF is in the process of helping to set up a new statistical framework for the country as a whole.

Sources include:

World Bank, Bosna i Hercegovina: od oporavka do odrzivog rasta, Washington, May 1997

World Bank, Bosnia-Hercegovina: Economic Brief, Washington, May 1997

IMF, Bosnia-Hercegovina: Recent Economic Developments, Washington, 1996

Select bibliography Ivo Andric, The Bridge on the Drina, published in English translation. Through a series of stories based around the bridge at Visegrad, this Nobel-Prize-winning novel portrays the history of ordinary Bosnians from the Turkish occupation until 1914.

Noel Malcolm, Bosnia: A Short History, London, 1994. This is a well-researched and readable history of the country by an academic/journalist.

R J Donia and J V A Fine Jr, Bosnia-Hercegovina: A Tradition Betrayed, London, 1994. This history focuses on the origins of the major ethnic groups in BiH, seeking to portray a tradition of tolerance and diversity.

Susan Woodward, Balkan Tragedy: Chaos and Dissolution after the Cold War, Washington, 1995. This is the best scholarly account of the disintegration and collapse into war of former Yugoslavia. It traces the origins of Yugoslavia’s

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 26 Bosnia and Hercegovina (BiH): Reference tables

collapse back to the tensions and contradictions in Tito’s Yugoslavia, and includes an economic element in its account.

Misha Glenny, The Fall of Yugoslavia, third edition, London, 1996. This is an extremely readable account, which succeeds in portraying the atmosphere in former Yugoslavia in the period leading up to the war and during the war itself.

Laura Silber and Allan Little, The Death of Yugoslavia, London, 1995. A very detailed and well-researched chronological account of the break-up of Yugosla- via and the war that followed.

Reference tables

Reference table 1 Government finances (DM m) 1994a 1995a 1996 Total Total Total BiH Federation RS Revenue 612 1,043 78 1,647 365 Tax revenue 367 574 – 1,115 243 Social fund contributions 141 244 – 457 85 Non-tax revenue 27 56 78 39 29 Other revenue 77 169 – 36 8 Total budget resourcesb – – 78 2,497 447 Expenditure 668c 1,051c 128 2,839 448 Balance 56 –8 –50 –342 –1

a The figures for 1994 and 1995 are the sum of the budgets of the Muslim- and Croat-controlled areas of the federation and of the RS. b Includes external donor funding. c Cash basis.

Sources: IMF; World Bank.

Reference table 2 Money supply (DM m; year-end) 1994 1995 1996 Federation RS Federation RS Federation RS M1 163 52 236 41 237 n/a Quasi-money 44 248 39 185 89 n/a Broad money 207 230 275 226 303 221 Sources: IMF; World Bank.

Reference table 3 Gross domestic product (current prices) 1991 1994a 1995a 1996a Total ($ bn) 8.6 1.5 2.1 3.2 Real change (%) n/a n/a 33 50 Per head ($) 1,979 357 501 776

a Estimates.

Source: World Bank.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Bosnia and Hercegovina (BiH): Reference tables 27

Reference table 4 Consumer prices (% change, year on year) 1991 1994a 1995a 1996a Federation 114 780 –12 3 Republika Srpska 114 1,061 133 –9

a Estimates.

Source: World Bank.

Reference table 5 Earnings (average net monthly wage; DM) 1991 1994 1995a 1996a Federation 666 n/a 94 236 Republika Srpska 666 n/a 51 60

a Estimates.

Source: World Bank.

Reference table 6 Labour force (’000 unless otherwise indicated) 1991 1996 BiH Federation Republika Srpska BiH Working age (20-59) 2,404 1,236 549 1,785 Labour force 1,882 967 430 1,397 Formal employment 1,308 307 199 506 Registered unemployed 283 167 n/a n/a Unemployment rate (%) 30 68 54 64 Sources: World Bank; BiH Employment Bureau.

Reference table 7 Industrial production index (1991=100) 1992 1993a 1994a 1995a 1996a Total industry 33.2 8.6 9.0 10.8 11.5

a Estimate.

Sources: IMF; World Bank; national statistics.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 28 Bosnia and Hercegovina (BiH): Reference tables

Reference table 8 Industrial production (% of total industrial output) 1991 1996 BiH Federation RS Electric power 12.5 33.5 35.9 Coal mining 5.7 10.2 6.8 Textile 8.8 5.8 2.9 Finished wood products 6.5 3.8 6.6 Fabricated metal products 9.2 3.2 2.4 Food processing 8.5 14.7 8.2 Sources: National Statistics; World Bank.

Reference table 9 Balance of payments ($ m) 1990 1995 1996 Goods: exports 1,990 152 336 Goods: imports 1,700 –1,082 –1,882 Trade balance 290 –930 –1,546 Current-account balance n/a –134 –1,620 Source: World Bank.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Croatia: Basic data 29

Croatia

Basic data

Land area 56, 610 sq km (26.2% arable, 20.4% pasture and 36.7% forest)

Population 4,784,265 (1991 census; official mid-year estimate for 1995 is 4,776,000)

Main towns Population in ’000, 1991

Zagreb 868 Split 200 Rijeka 168 Osijek 130 Zadar 80

Climate Mediterranean on coast, continental inland

Weather in Zagreb Hottest month, August, 20.6°C (average daily); coldest month, January, 0°C; driest month, August, 24 mm average rainfall; wettest months, September and November, 97 mm average rainfall

Weather in Split Hottest month, July, 25.8°C; coldest month, December, 7.3°C; driest month, July, 10 mm average rainfall; wettest month, October, 159 mm average rainfall

Languages Croatian, Serbian (the two are almost identical)

Measures Metric system

Currency Croatian kuna (HRK). Average exchange rates in the first half of 1997 were: HRK6.01:$1; HRK3.57:DM1; HRK9.81:£1.

Time 1 hour ahead of GMT

Public holidays January 1; Easter Monday; May 1; May 30 (Croatian national day); June 22 (day of anti-fascist struggle); August 15 (the Assumption); November 1 (All Saints); December 25-26

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 30

Comparative economic indicators, 1996

Gross domestic product (a) Gross domestic product $ bn per head (a) Russia 600.2 $ Poland 231.4 Slovenia Ukraine Czech Republic Romania Slovakia Czech Republic Hungary Hungary Poland Uzbekistan Croatia Kazakhstan Romania Slovakia Estonia Belarus Bulgaria Bulgaria Russia Serbia-Montenegro Lithuania Croatia Belarus Slovenia Latvia Lithuania Serbia-Montenegro Kazakhstan Armenia Macedonia Latvia Armenia Azerbaijan Albania Albania Ukraine Moldova Uzbekistan Turkmenistan Moldova Estonia Turkmenistan Kyrgyz Republic Kyrgyz Republic Georgia Georgia Macedonia Azerbaijan Tajikistan Tajikistan 0 20 40 60 80 100 120 140 160 180 0 2,000 4,000 6,000 8,000 10,000 12,000 (a) At purchasing power parities. (a) At purchasing power parities. Sources: EIU estimates; national sources. Sources: EIU estimates; national sources.

Consumer prices Gross domestic product % change, year on year % change, year on year

Turkmenistan 992.0 Georgia Tajikistan 443.0 Albania Bulgaria 123.0 Slovakia Serbia-Montenegro Poland Ukraine Armenia Uzbekistan Serbia-Montenegro Belarus Kyrgyz Republic Russia Czech Republic Georgia Romania Kazakhstan Estonia Romania Croatia Kyrgyz Republic Slovenia Moldova Latvia Lithuania Belarus Hungary Macedonia Estonia Uzbekistan Poland Azerbaijan Azerbaijan Kazakhstan Armenia Hungary Latvia Lithuania Albania Turkmenistan Slovenia Russia Czech Republic Moldova Slovakia Ukraine Croatia Bulgaria Macedonia Tajikistan 0 102030405060708090100 -20 -15 -10 -5 0 5 10 15

Sources: EIU estimates; national sources. Sources: EIU estimates; national sources.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997

32 Croatia: Historical background

Political background

Historical background

Austro-Hungarian rule The Croats arrived in south-east Europe in the 6th and 7th centuries and by the 10th century a Croatian kingdom united most of what is now Croatia and, subject to fluctuating borders, extended to parts of modern Bosnia and Hercegovina (BiH). In 1102 Croatia entered a dynastic union with Hungary which, apart from a period of Ottoman rule in the 16th and 17th centuries, endured until 1918; following Hungary’s defeat at Ottoman hands in 1526, the Hungarian crown, including Croatia, was claimed by the Habsburgs. In the 17th century the Habsburg emperor created a Military Frontier (Krajina) along the border with the Ottoman Empire (which included BiH until 1878), detach- ing it from Zagreb’s rule. The population in these regions was granted special privileges in return for defending the frontier, and the Habsburgs encouraged settlers from the Ottoman Empire, including many Serbs, to live there. In addition, Dalmatia and Istria had come under Venetian control, passing to Austria after the Napoleonic Wars. In 1867 the Habsburg Empire was reorgan- ised as the Austro-Hungarian Empire, resulting in Croatia’s division between the Hungarian and Austrian halves, the latter retaining Dalmatia and Istria.

The Croat national During the 19th century Croatia’s dissatisfaction with its lot in Austria- question Hungary produced nationalist movements which varied between narrow Croatian nationalism and demands for recognition of Croatia’s state rights on the one hand, and inclusive “Yugoslav” nationalism, advocating cooperation and, at times, unification with the other South Slav peoples, on the other. Tension between these two strands was to dominate debate over the Croatian national question throughout most of the 20th century. Following the collapse of Communist rule in 1990, the former strand emerged victorious.

The first Yugoslavia Following the collapse of Austria-Hungary at the end of the First World War, Croatia’s political leaders agreed to become part of the Kingdom of Serbs, Croats and Slovenes, under the Serbian Karadjordjevic dynasty. This state was racked by internal divisions, particularly between the dominant Serbs and recalcitrant Croats, who quickly became disenchanted over Croatia’s perceived unequal status in the kingdom. The assassination of the Croat political leader, Stjepan Radic, in the Belgrade parliament in 1929 was followed by the impos- ition of a royal dictatorship, as King Aleksandar sought to impose unity on his country, whose name he changed to Yugoslavia. King Aleksandar was assassi- nated in 1934, in a plot coordinated by the extreme Croat nationalist Ustasha organisation. In a bid to unite the country as war drew closer, Croatia was in 1939 granted autonomy within Yugoslavia.

The Second World War Following their attack on Yugoslavia in April 1941, the Germans established a puppet Independent State of Croatia (NDH) on territory comprising most of present-day Croatia, all of BiH and part of present-day Serbia, under the Ustashas. The Ustashas set about a campaign of genocide against Serbs, Jews and Gypsies on this territory, prompting resistance by the Serbs and many

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Croatia: Historical background 33

Croats, in which the Communist-led partisan movement of Josip Broz Tito (a Croat) took the main initiative. At the end of the war, the partisans succeeded in taking power and re-establishing Yugoslavia as a Communist federation of six units, one of which was Croatia.

Croatia in Tito’s After Tito’s break with Stalin in 1948, Communist rule was gradually relaxed, Yugoslavia as Yugoslavia came increasingly to rely on the West. By the mid-1960s, the country had to a considerable degree been decentralised; Croatia’s Communist leaders were in the forefront of those seeking further decentralisation to the republics. These moves received wide support in Croatian society, culminating in the “Mass Movement” (Maspok) period, the “Croatian spring” of 1970-71. Fearing that Croatia’s Communists had lost the initiative in these events, Tito ordered a crackdown; the Croatian leadership was dismissed and numerous Maspok leaders arrested.

Further decentralisation came with the 1974 Yugoslav constitution, according to which a unified Communist party was supposed to rule a loose federation of republics. However, following Tito’s death in 1980, the country’s Communist leaders proved unable to adopt a unified approach to the country’s growing economic problems, as republican leaderships jealously guarded their respec- tive republics’ autonomy and interests. As widespread dissatisfaction with the dysfunctional federation boiled over into nationalist ferment in Serbia in the late 1980s, provoking a strong counterreaction and growing demands for disassociation in Slovenia, Croatia remained largely quiet and sullen, its Communist leaders struggling to find an appropriate response. However, the free parliamentary elections were in April and May 1990 was the occasion for an outpouring of suppressed resentment and nationalism in Croatia, as many leaders from the Maspok period returned to the political scene.

The end of Yugoslavia The 1990 elections were won convincingly by the Croatian Democratic Union (HDZ) of Franjo Tudjman, a former Communist general turned nationalist dissident, who became president. In July 1990 parliament approved constit- utional changes which included downgrading the Serb minority from their previous status as a constituent nation of the republic. In response, Serbs in the Krajina regions proclaimed their autonomy, leading to confrontation with the Croatian authorities and armed insurrection. With the Yugoslav army (JNA) intervening more and more openly on the Serb side, the situation became increasingly polarised during the second half of 1990 and the first half of 1991.

In a series of meetings in early 1991 to resolve the country’s future, the leaders of Yugoslavia’s republics merely reiterated their opposing views and no pro- gress was made. Meanwhile, Serbia tried to manipulate the collective federal presidency to bring about a state of emergency that, with the help of the JNA, could be used to thwart moves towards secession by Slovenia and Croatia. The attempt failed. With Slovenia determined to make a clean break from Yugoslavia, the Croatian authorities, too, decided to declare full independence, on June 25, 1991.

The wars of 1991-95 Following a brief war in Slovenia, which finished with a JNA withdrawal in early July, the JNA and Serb paramilitaries in Croatia set about trying to increase the

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 34 Croatia: Constitution and institutions

areas under Serb control. By the end of the year, roughly one-third of the country was outside Zagreb’s control. Under a UN plan put forward by the former US secretary of state, Cyrus Vance, a ceasefire was negotiated at the beginning of 1992 and a UN force was deployed in the Serb-controlled zones, from which the JNA withdrew. Following German pressure during the second half of 1991, the EU recognised Croatia’s independence in January 1992. The conflict in Croatia was now effectively frozen, as, apart from occasional flare- ups, the UN maintained a fragile peace and the war moved on to BiH.

While life returned to normal in much of Croatia, the loss of so much of its territory, the disruption it caused and the vulnerability to Serb attack of areas neighbouring the Serb-controlled regions meant that the war continued to dominate the political agenda. Frustration at the UN’s failure to make progress towards restoring the country’s territorial integrity deepened until, in 1995, Mr Tudjman felt able to take the initiative in settling the problem. Despite reluctantly agreeing to a renewal of the UN mandate in March 1995, in assaults in May and August the Croatian army succeeded in recapturing most of the Serb-controlled areas, sparking a mass exodus of most of their Serb population. According to an agreement signed in Erdut in November 1995, which comple- mented the Dayton peace agreement for BiH, the last Serb-controlled region of Eastern Slavonia was to be restored to Zagreb’s full control following a trans- itional period under UN administration. While the date of the final UN with- drawal has been postponed, pending measures by Zagreb to reassure the local Serb population, the region has been gradually reintegrated into Croatia during 1997 and UN forces are due to leave at the beginning of 1998.

Constitution and institutions

The Croatian constitution was promulgated in December 1990 and amended in 1992. It stipulates the separation of powers between the executive, legis- lative and judicial bodies. The parliament (Sabor) consists of two houses, the Chamber of Representatives (Zastupnicki dom), the lower house, and the Chamber of Counties (Zupanijski dom), the upper house. The Chamber of Representatives has 127 deputies, of whom 80 are elected by proportional representation from national party lists, 28 are directly elected by single- member constituencies, seven are representatives of national minorities and (particularly controversially) 12 deputies are elected from special lists by the Croatian diaspora (predominantly by Bosnian Croats). Although the constit- ution vests supreme legislative authority in the Sabor, considerable power is in fact exercised by a system of informal structures around the presidential administration, such as the powerful Council of Defence and National Security (VONS). There has been considerable criticism, both domestic and inter- national, of a tendency towards an authoritarian style of rule by Mr Tudjman and a ruling oligarchy around him. This, it is argued, has demeaned the role of the Sabor and stunted the development of democracy in Croatia.

Croatia has a three-tier system of courts, with municipal courts at the local level, county courts and the Supreme Court at the top. In addition there are commercial courts, military courts and administrative courts covering partic- ular areas of the law. The judges of the Constitutional Court are elected by the

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Croatia: Political forces 35

Sabor, for terms of eight years. Mr Tudjman was severely criticised when, fol- lowing the failure of the HDZ to win a majority in the Zagreb city assembly in municipal elections in November 1995, he repeatedly refused to confirm the assembly’s appointments of mayors from opposition parties, citing an alleged threat to state security. Although his actions were in accord with the letter of the constitution, he was widely condemned for subverting it in the interest of his party, further undermining democratic rule.

Political forces

The HDZ adapts to The dominant political party since the 1990 elections has been the HDZ. post-war conditions— Mr Tudjman was directly elected as president in August 1992 and again in June 1997, while the HDZ has consistently won majorities in elections to both houses of parliament. The HDZ has assumed the character more of a broad national movement than a political party, mobilising a wide range of views, from the centre-right to hardline nationalist, united in striving for national sovereignty. This unity has come under increasing strain as Croatia adapts to post-war conditions, particularly as the poor health of the elderly president, who in late 1996 was reported to be suffering from terminal stomach cancer, has given new impetus to efforts to define a profile more suited to peace-time normalisation. Broadly, the party is divided between moderates who empha- sise the need for economic reform and integration in Western structures and hardliners closely connected to the Bosnian Croat Hercegovina lobby, who are determined to resist Western pressure over the rights of Croatia’s Serb minority and the reintegration of BiH.

—and seeks allies among The HDZ has placed considerable reliance on the stature of Mr Tudjman, who the other parties is widely revered for having secured independence and won the war. The party is less popular than the president, and its support has declined in particular in some of the major cities. In order to secure its position after Mr Tudjman’s departure from the scene, the HDZ may seek alliances with other parties, a trend already seen in agreements forged at the local level. Of the three other main parties, the Croat Peasant Party (HSS) and the Croatian Social Liberal Party (HSLS) both compete with the HDZ for the centre-right vote, and are both being targeted by the HDZ as potential partners.

The HSLS has been racked by divisions between a tendency aiming to unite the centre-right of the political spectrum and one inclined to cooperate with the fourth major party, the post-Communist Social Democratic Party (SDP), in opposing the HDZ. The SDP’s candidate in the 1997 presidential election, Zdravko Tomac, out-polled the joint candidate of the rest of the opposition, the HSLS’s Vlado Gotovac, receiving 21% of the vote to Mr Gotovac’s 18% (Mr Tudjman scored 61%). The SDP has succeeded more than the other main parties in establishing a clear profile, as a party of the moderate left. However, it has found it difficult to overcome the stigma attached to its Communist roots, especially in conservative rural areas.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 36 Croatia: International relations and defence

Election results (seats in lower house) Aug 1992 Oct 1995 Croatian Democratic Union (HDZ) 85 75 Croatian Social Liberal Party (HSLS) 14 12 Social Democratic Party of Croatia (SDP) 11 10 Croat Peasant Party (HSS) 3 10 Others 25 20 Total 138 127 Source: Press reports.

International relations and defence

Policy towards Bosnia There is a broad political consensus behind the desire for integration in Western institutions, and EU and NATO membership are long-term goals. However, such aspirations are being undermined by tensions with the international commu- nity over Croatia’s failure to use its influence with the Bosnian Croats to pro- mote BiH’s reintegration. Mr Tudjman has openly expressed doubts about the prospects for BiH’s long-term survival and has at times appeared to be tempted to seek an understanding with Serbia on a division of BiH. Croats and Muslims fought each other in BiH in 1993, until US mediation brought agreement on the creation of a federation uniting Croat- and Muslim-controlled areas of Bosnia in March 1994. However, limited Croat-Muslim cooperation during the remainder of the war did not translate into the integration of Croat- and Muslim- controlled areas in the half of BiH assigned to the federation after the Dayton peace accord. The two sides have remained bitterly divided and Croat-controlled areas are more closely integrated into Croatia than into BiH.

Increasing international Following the March 1994 agreement, Croatia enjoyed a period as the linchpin isolation of US policy in the region. With Washington’s encouragement it rolled back Serb-controlled territory in Croatia and BiH in 1995, paving the way for the Dayton agreement. However, during 1996 and 1997 Zagreb’s relationship with both Washington and the EU soured, as the Bosnian Croats blocked the inte- gration of the Federation of BiH and Croatia obstructed the return of Serb refugees who fled the Croatian offensives of 1995. In 1997 Western criticism of Croatia became more vocal, with threats that agreements with international financial organisations such as the IMF and the World Bank, and Croatia’s acceptance into international institutions, would be held up unless it complied with international demands.

Regional relations In addition, Croatia’s lack of enthusiasm for attempts, such as the EU’s Regional Approach and the USA’s South-east European Cooperation Initiative (SECI), to foster regional cooperation has caused irritation. Zagreb is very sensi- tive to any perception that Croatia is being consigned to the Balkan sphere. Nevertheless, the importance of relations within the region is recognised and steady progress has been made since Dayton in normalising relations with Yugoslavia (Serbia-Montenegro). Agreement on the reintegration of Eastern Slavonia into Croatia has removed the last major bone of contention between the two countries. The Zagreb-Belgrade relationship is crucial to regional stabil-

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Croatia: Economic structure 37

ity but tends to fuel suspicion regarding Croatia’s intentions towards BiH. The country’s main security threat comes from the risk of a renewal of fighting in BiH, particularly if the NATO-led Stabilisation Force (SFOR) withdraws in mid- 1998.

The economy

Economic structure

Industry and mining account for around 20% of GDP and agriculture for around 10%. Important export industries include chemical products, textiles, shipbuilding, food processing and pharmaceuticals. Disruption caused by the wars of the Yugoslav succession and by the loss of much of the former Yugoslav market has compounded structural problems which the country shares with other transition economies. Industry is particularly concentrated in the capital, Zagreb. The coastal regions of Dalmatia and Istria are the centres of the impor- tant tourism industry, whose recovery since the end of the war has been a key factor in boosting economic growth, and which is a vital source of foreign currency earnings. Since the end of the war, reconstruction, including housing and infrastructure, has also been a key element in kick-starting economic activ- ity.

Main economic indicators, 1996

Real GDP growth (%) 4.2 Unemployment rate (%) 16.4 Consumer price inflation (%) 3.5 General government balance (% of GDP) –0.1 Current-account balance (% of GDP) –7.6 Exchange rate (HRK:$) 5.4 Source: EIU.

Comparative economic indicators, 1996

Czech Hungary Republic Romania Slovenia Yugoslavia Croatia GDP ($ bn) 43.9 52.3 35.5 18.5 15.7 19.1 GDP per head ($) 4,308 5,063 1,569 9,254 1,477 4,243 GDP per head ($—PPP)a 6,906 10,136 4,641 11,210 2,914 4,850 Consumer price inflation (%) 23.6 8.9 38.8 9.7 93.1 3.5 Current-account balance ($ bn) –1.7 –4.5 –2.6 0.0 –1.7 –1.5 Current-account balance (% of GDP) –3.8 –8.6 –7.2 0.3 –10.6 –7.6 Exports of goods ($ bn) 14.2 21.7 8.1 8.4 1.8 4.5 Imports of goods ($ bn) 16.8 27.7 10.6 9.2 4.1 7.0 a At purchasing power parities.

Source: EIU.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 38 Croatia: Economic policy

Economic policy

Economic stabilisation The government embarked upon a rigorous economic stabilisation programme in October 1993, which succeeded in bringing price and exchange rate stabil- ity. However, this achievement was not initially matched by progress in eco- nomic restructuring and recovery. As long as the war in Bosnia continued, and key territories in Croatia itself remained outside Zagreb’s control, the economy was essentially on a war footing, with high military expenditure and high levels of taxation to finance it. A very tight monetary and fiscal stance was maintained by the government, with very nearly balanced budgets until 1996. Prospects for recovery were therefore effectively stifled.

Slow privatisation and While privatisation has proceeded, it has not on the whole been undertaken in restructuring such a way as to foster far-reaching economic restructuring. Initially, socially owned enterprises were transformed into state-owned enterprises. To oversee their restructuring and privatisation, a Privatisation Fund (CPF) was estab- lished. The CPF has steadily divested itself of its large portfolio of shares, including by means of sales of shares to employees, at a discount. The CPF has experienced difficulties in finding buyers, with domestic private capital lack- ing. A final phase of privatisation was instituted in March 1996, with a mass voucher privatisation scheme, intended primarily to benefit victims of the war. A new list of assets to be privatised in this manner was issued in March 1997 and amended slightly in April. A third type of privatisation is through restitu- tion and compensation for property nationalised or confiscated under Communist rule, according to a law enacted in October 1996. Five percent of the value of privatised firms has been set aside for the compensation process. Plans to sell off the utilities and banks undergoing rehabilitation programmes have been considered, although the authorities have sometimes appeared re- luctant to divest themselves of what are regarded as strategic enterprises.

The main criticism of the privatisation process has related to the manner in which it has been carried out. Critics have pointed to alleged abuses which have enabled people with good political connections to take control of many firms. However shares have been acquired, the result has often been that people with close HDZ links have taken control of privatised enterprises. Such managers have often felt little incentive to restructure their companies, so that progress in microeconomic reform has been slow. This problem has been com- pounded by the slowness of banking sector reform. One of the legacies of the Communist period was that major banks were closely connected with socially owned enterprises which were also the banks’ major debtors and, following the ownership transformation of 1991, became their owners. These now state- owned companies, still unprofitable and propped up by the government, had little incentive to promote reform of the banks, which were a continuing source of soft loans. Thus, although an efficient financial sector would be vital to sustainable economic reform and recovery, the will to carry out the neces- sary reforms was lacking.

Faster progress by 1997 However, by 1997 the political will to press ahead with reforms has appeared to be more forthcoming. Of the two largest banks, Zagrebacka banka, is privately owned, with its shares listed on the London Stock Exchange. It pressed ahead

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Croatia: Economic performance 39

with restructuring itself from an early stage, taking advantage of the fact that as a private bank it was not subject to the pressures experienced by state-owned banks to fund the losses of ailing enterprises. The other of the two largest banks, Privredna banka Zagreb (PBZ), proved more problematic. Highly poli- ticised, it was saddled with a large share of state companies’ non-performing loans. Selected for rehabilitation, it initially resisted change, finally bowing to political pressure in mid-1996. The fact that PBZ’s rehabilitation, involving the transfer of bad loans to a rehabilitation agency and the recapitalisation of the bank, has gone ahead might suggest a greater seriousness on the part of the authorities about the reform process in general. With the local, upper house and presidential elections of 1997 over, the government has signalled that concern over the social consequences of restructuring will no longer deter it from taking tough decisions on cutting support for ailing industries.

Growth-oriented In the second half of 1996 the government relaxed slightly its tight fiscal and monetary and fiscal monetary stance, moving towards a more growth-oriented policy. Interest rates policies and banks’ reserve requirements were reduced and the money supply ex- panded, while the 1997 budget foresees a deficit (of below 3% of GDP). The government has opted to take a central role in promoting growth, particularly through the post-war reconstruction effort. Given the lack of domestic capital, the government is placing considerable reliance on foreign borrowing. Some criticism has been levelled at the authorities for taking such a central role in the reconstruction effort, at the risk of crowding out the private sector. Indeed, scepticism regarding the government’s intentions remains, particularly over whether it will break with the custom of a strong state role and politicised appointments in industry. (See Reference tables 1 and 2 for historical data on government finances and money supply.)

International isolation Political and foreign policy developments impinge upon the economy to a harms recovery prospects substantial degree. In striving for economic recovery, Croatia is dependent on international help. However, its record in this regard has so far been mixed. The awarding of investment grade ratings by Standard and Poor’s and IBCA in January 1997, and the IMF’s decision in March to award a three-year $486m extended fund facility (EFF), enhanced the country’s credibility and foreign borrowing prospects. However, the increased international pressure during 1997 has raised fears that Croatia’s integration into international structures may be delayed, with damaging economic consequences. The political tussle between those close to the Bosnian Croat Hercegovina lobby and those who emphasise economic development and integration into the international com- munity has yet to be resolved.

Economic performance

Growth is led by Following a significant contraction at the beginning of the 1990s and fairly flat reconstruction— GDP growth in 1994 and 1995, the economy returned to growth in 1996. The extent of the upturn has provoked some debate. The official figure appears rather modest for a country recovering from a deep recession and war and embarking on a reconstruction programme. It is widely suspected that the true figure, including a fairly significant grey economy, should be somewhat

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 40 Croatia: Population

higher. Nevertheless, growth in industrial output has been disappointing (3.1% in 1996), in part reflecting the slow progress in restructuring. Rather, the country has relied for growth on a revival in tourism and on post-war recon- struction, including construction and infrastructure development. The reinte- gration of Eastern Slavonia will require a major reconstruction effort and this will provide a continuing motor for growth. The prospects for sustainable GDP growth beyond the current period of reconstruction and revival connected with the end of the war will depend in large part on the government’s commit- ment to the deep economic reform which has been signalled in 1997. (See Reference tables 3 and 4 for GDP data.)

—and a policy loosening Another factor boosting GDP growth is the financial loosening of 1996-97, which has fuelled consumption-led growth. The fiscal expansion indicated by the 1997 budget is partly motivated by a desire to share out more evenly the benefits of recovery. This is in part for political reasons, as the popular percep- tion that a well connected elite has benefited from the transition while the bulk of the population has remained impoverished has harmed the HDZ. The 1997 budget aims to go some way towards redressing this imbalance, with more social provision. There is an added need for this increased social provi- sion, as the government’s plan to move ahead more resolutely with economic restructuring is likely to result in an increase in the already high level of unemployment.

In addition, there has been a rapid increase in real wages in 1997. This shift towards higher consumption is fuelling growth in the short term, but there is a risk, in that Croatia’s already low savings rate may suffer further, harming longer-term growth prospects. It has also brought rapid increases in imports and resultant concerns about the current-account deficit. The government is having to balance its more growth-oriented policy against a desire to maintain financial discipline, as required by the IMF as part of its loan agreement. So far, prices have remained fairly stable, with an annual average rate of inflation of 3.5% in 1996, and a planned rate of 3-4% in 1997. While the kuna has depreciated against a strong dollar in 1997, it has remained fairly constant against the DM. It is widely considered to be overvalued, a fact which has brought persistent complaints from exporters accusing the government of undermining export competitiveness. (See Reference table 5 for prices and earnings performance.)

Resources

Population

According to the last census, Croatia’s population was 4.8m in 1991. The wars of 1991-95 caused considerable upheaval and displacements of population: probably more than half the Serb population (581,663, or 12%, according to the 1991 census) has left; most of the Serb population of the Krajina regions of southern and central Croatia (perhaps 150,000 people) fled before the Croatian offensives of 1995; Serbs (including refugees from other parts of Croatia) re- main in a majority in Eastern Slavonia, the last Serb-controlled enclave, but a

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Croatia: Education and health 41

mass return of Croat refugees to the region is planned by the authorities; many Croats displaced within Croatia during the war have not yet returned to their homes; many Croats left the country during the war, whether as refugees or as economic migrants, swelling the already large numbers of Croat émigrés in western Europe; on the other hand, Croatia has itself taken in large numbers of refugees, especially Croats, but also Muslims, from BiH during the war.

Official population estimates for the years since 1991, as published in the annual statistical report (Statisticki ljetopis), have been made on the basis of the 1991 census and estimates of natural change, and have not reflected the up- heaval of the war years. It seems likely that the upheaval has caused a net decline in the country’s overall population, although this has not been re- searched. (See Reference tables 6 and 7 for statistics on population and the labour force.) In its monthly report (Mjesecno statisticko izvjesce), the Central Bureau of Statistics estimates the population at around 4.5m in 1996. It is not intended to carry out a new census until the return of refugees is more ad- vanced and the demographic picture becomes more settled.

Population by age, 1991 (’000) Age bracket Males Females Total 0-14 474 452 926 15-19 167 159 326 20-39 713 691 1,404 40-59 605 616 1,221 60-74 253 365 618 75+ 72 145 217 Unknown 34 38 72 Total 2,318 2,466 4,784 Source: Central Bureau of Statistics, Statisticki ljetopis.

Education and health

Education The illiteracy rate in Croatia has fallen steadily, from 9% in 1971 to 5.6% in 1981 and 3% in 1991. Primary education in Croatia is compulsory between the ages of six (or seven) and fifteen. After that, students may follow either a classic academic education, through the gimnazije (grammar schools) or a vocational education, designed to prepare them for work in particular trades, professions or industries. Graduates of the gimnazije and some types of vocational schools progress to the universities, which are situated in Zagreb, Rijeka, Osijek and Split. Since the first free elections in 1990, reforms of the curriculum have focused in particular on the humanities, with the intention of expunging the element of Marxist ideology in education and giving the curriculum a more specifically “Croatian” content. This is proving particularly contentious as Eastern Slavonia is reintegrated into Croatia, as the Serbian population has objected to having the Croatian curriculum imposed on them. Croatia does provide for minority language education and some accommodation for the country’s Serbs is being made (in part under international pressure). However, it is likely that the issue will remain contentious.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 42 Croatia: Natural resources and the environment

Life expectancy There was little improvement in the average life expectancy in Croatia between 1971 and 1991, which was steady at about 66 for men and increased from 72 to 74 for women, compared with an improvement in the European average from 68 to 72 for men and 74 to 79 for women over the same period. Infant mortal- ity declined from 20.6 per 1,000 births in 1980 to 8.9 per 1,000 in 1995, slightly below the European average. The main cause of death in 1995 was heart dis- ease, the incidence of which in Croatia is above the European average.

Healthcare provision According to the laws on health and health insurance of 1993, healthcare is guaranteed to all. Provision is made for the opening of private medical practices and for supplementary health insurance. At the end of 1995 the state health service employed 39,668 full-time staff, including 9,090 physicians, while the private sector employed 407 full-time staff, including 27 physicians. The state has maintained a leading role in healthcare provision and existing medical facilities have only limited possibilities for engaging in private practice, through leases of public healthcare facilities. A principal problem in recent years has been a shortage of resources for the health sector, given the budget constraints imposed by economic contraction following the break-up of Yugoslavia.

Natural resources and the environment

Although a relatively small country, Croatia is geographically diverse. It can be divided broadly into three geographical regions: the coast, with a Mediterranean climate, inland mountains and the lowlands of Slavonia, with a continental climate. Temperatures in the inland areas vary on average between about 30-35° in summer and -5° to -10° in winter, while on the coast winters are mild and summers hot and dry. The country has 1,185 islands, of which 66 are inhabited. The landscape too is diverse, varying between the flat, agriculturally rich plains of Slavonia, gently rolling hills in the Zagorje region around Zagreb and the bare mountains of the Dinaric Alps inland from the coast. Around one-third of the land area is covered by forest. Differences of geography and relief account for widely different patterns of livelihood and culture among the country’s regions, particularly between the largely pastoral economy of the Dinaric region and the Slavonian plains, in which cultivation predominates.

Economic infrastructure

Transport and communications

International transport Some of the main trunk routes linking central and western Europe with south- links eastern Europe pass through Croatia, although its road and rail networks are in need of substantial upgrading. The third Pan-European Transport Conference in June 1997 proposed that two out of ten corridors linking eastern Europe into the European road and rail network should pass through Croatia, with a third route linking Slavonia with the port of Ploce, passing through BiH.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Croatia: Energy provision 43

Government plans Railway traffic fell substantially due to the disruption caused by the 1991-95 wars. The network carried 17.4m passengers in 1996, compared with 40.2m in 1990. With the restoration of the country’s territorial integrity, traffic should increase, but the 2,726 km of track (36% electrified) in 1995 does not approach the country’s needs, with some regions and towns (notably in Dalmatia) not served at all. The government plans to modernise the network over the next five years. The road network provides the most important means of transport, with 27,400 km of roads, including 287 km of motorways. Here too, provision is deficient, and road-building is a high government priority, with plans for 1,400 km of new motorways.

Maritime communications are important for Croatia, with its long coastline. Goods carried rose to 38.6m tons in 1996 compared with 23.3m in 1986; a decline in passengers carried from more than 8m before 1991 to 6m in 1996 is explained by wartime disruption.

Telecommunications The government plans to separate the telecommunications system from the post and telecommunications company, HPT, and to privatise it, although this has met with resistance from elements in parliament which are opposed to the sale of what is seen as a strategic industry. HPT represents one of the country’s most promising privatisation candidates. Considerable investment has gone into the telephone network, with the number of lines doubling since 1990, despite the war. The company made a net profit of about $60m in 1995.

Energy provision

Oil and gas production Oil and gas production has declined during the 1990s and in 1995 was at 73% of the 1989 level. The state oil company, INA, which is tipped for early privat- isation, plans to devote $20-30m per year to oil exploration in an attempt to reverse the trend. Progress has been made in the Eastern Slavonian region, as it reverts to Croatian rule, where the country’s biggest oilfield, Djeletovci, was reported in July 1997 to have reached its pre-war level of output. INA hopes to boost natural gas production through a deal reached with Italy’s Agip for joint exploration in the Adriatic. (See Reference table 8 for historical data on energy production.)

Increasing demand A study by ING Barings estimated that total energy consumption in Croatia, which declined with the reduction in overall economic activity in the early 1990s, could rise by 4.9% by 2000. To meet the new demand, the Croatian electricity board (HEP) is seeking investment in new power plants. Germany’s RWE AG and HEP are forming a joint venture to build a thermoelectric plant in Istria, and HEP announced in July 1997 that it was doing a deal with two US companies, Enron and Ensearch, to build three new coal and gas-fired plants, worth $1bn, the building of the first of which is set to begin near Zagreb in 1998. Croatia and Slovenia’s relations have been marred since independence in part by disagreement over joint ownership of the Krsko nuclear plant, in Slovenia, which was built jointly by the two states when they were both Yugo- slav republics. Agreement is expected to be reached in 1997.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 44 Croatia: Financial services

Energy balance, 1996 (m tons oil equivalent) Elec- Oil Gas Coal tricitya Other Total Productionb 1.5 1.6 0.1 2.1 0.3 5.6 Importsb 4.0 0.6 0.3 1.3 0.0 6.2 Exportsb –2.0 0.0 –0.2 –0.3 0.0 –2.5 Primary supplyb 3.5 2.2 0.2 3.1 0.3 9.3 Losses and transfersc –1.0 –0.8 –0.1 –3.3 0.0 –5.2 Transformation outputd 0.0 0 0.0 1.3 0.0 1.3 Final consumptiond 2.5 1.4 0.1 1.1 0.3 5.4

a Primary electricity output and imports/exports of electricity are expressed as input equivalents, on an assumed generating efficiency of 33%. b Input basis. c Losses and transfers comprise input to transformation processes (electricity generation, gas manufacture, liquids from coal etc), plus energy industry fuel and losses. d Output basis.

Source: Energy Data Associates.

Financial services

The banking sector The National Bank of Croatia (NBH, the central bank) effectively became the central monetary authority upon the introduction of the Croatian dinar (which was replaced by the kuna in May 1994) in December 1991. Its role was defined by legislation in November 1992, according to which the NBH is an independent institution, responsible to parliament rather than to the govern- ment. The structure of the Croatian banking sector has changed only gradually since the end of Communist rule. The two biggest banks, Zagrebacka banka and Privredna banka Zagreb (PBZ), account for about half the sector. In add- ition, there are regionally based banks inherited from the Communist era, which are at varying stages of rehabilitation, and relatively small private banks which have appeared since the end of Communist rule.

Competition in the banking sector has also been enhanced by the appearance of foreign banks, including Bank Austria and Deutsche Bank among other banks from Austria, Germany and other west European countries. However, competition has been uneven, with most of the new private banks appearing in Zagreb. The sector has made major strides in 1996 and 1997. Rehabilitation of some of the main regional banks, for example Slavonska banka, Rijecka banka and Splitska banka, has got under way, as well as that of PBZ, the most problematic of all (see Economic policy). As the sector becomes more efficient, the economy as a whole stands to benefit, as has been seen notably in the decline of interest rates and the narrowing of spreads.

The stock market The Zagreb Stock Exchange (ZSE) opened in 1992. Turnover increased rapidly in 1996 and 1997, with two particularly successful stocks, Zagrebacka banka and the pharmaceutical company, Pliva, accounting for much of the growth. The ZSE remains small and few privatised companies have been floated on it. Croatia’s investment grade ratings from key ratings agencies have brought increased international investor interest in the country and further growth of the ZSE is in prospect. However, the ZSE has suffered as companies seeking capital, including Zagrebacka banka and Pliva, are attracted to London, taking

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Croatia: Other services 45

business away from Zagreb. There are also small over-the-counter markets in Varazdin and Osijek.

Other services

Tourism is a key sector for Croatia, with its long coastline, numerous islands and hot Mediterranean climate. It contains several popular resorts, including the city of Dubrovnik. However, the sector suffered during the war, as visitors were deterred by the fighting and instability in the region, and it has yet to regain pre-war levels. The number of tourist nights was about 53m in 1990, having already fallen from 68m in 1988, but plummeted to around 10-12m during the war (apart from a shortlived recovery in 1994). The year 1996 saw a partial recovery to around 21m. The recovery is expected to continue, with the tourism ministry predicting 24% growth in 1997. However, that remains well short of the pre-war level of activity. The ministry has targeted media campaigns at Austria, Italy, Germany and the Czech Republic, from which the largest num- bers of tourists to Croatia come, in the hope of boosting the industry.

Part of the problem is the changing nature of the tourism industry in general. Much of Croatia’s tourism infrastructure dates from the Communist period and was aimed at mass package tourism. However, the quality of facilities is on the whole inferior to that offered by other Mediterranean destinations, while prices are similar. Thus it is not sufficient for existing hotels simply to be repaired and reconstructed. New, higher quality facilities need to be built if Croatia is to realise its tourism potential in the world of the 1990s. There is thus much to be done, but the potential of the sector is such that it is proving attractive to foreign investors, with much interest in Austria and as far afield as South Korea.

Production

Industry

A return to growth Industrial output declined sharply early in the 1990s, with a drop of 46% between 1989 and 1992. The decline was in part due to the collapse in trade among the former Communist countries of eastern Europe. This was a phe- nomenon common to all such countries but it was especially sharp in Croatia’s case owing to the loss of much of the important former Yugoslav market, as well as disruption and destruction caused directly by the war. Industry experi- enced an upturn in 1996 according to official data, which show output growth of 3.1%. Early indications for 1997 suggest that the recovery in output is moving ahead more strongly.

Following the practice in former Yugoslavia, official data neglect small busi- nesses (those with fewer than 20 employees), which means that the perform- ance of many new enterprises goes unrecorded. Taken in conjunction with the fact that Croatia has a large grey economy (estimated at 25% of GDP according to recent research), the level of activity is probably somewhat higher than the official figures suggest.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 46 Croatia: Mining and semi-processing

Key industries The textile industry is a particularly significant employer, containing an esti- mated 400 enterprises. It is an export-oriented industry, with the majority of work being done in cooperation with foreign manufacturers. Other important employers include manufacturers of footwear and other leather products, and the chemical and petrochemicals industries. Important heavy industries in- clude shipbuilding and metal products. Such industries, which have been re- garded as being of strategic importance, were kept afloat by the government during the war, with generous subsidies. More recently there has been some debate over whether the government should continue to maintain these indus- tries. The manufacture of wood products and paper is also important for Croa- tia, using the country’s still fairly abundant forests. (See Reference table 9 for statistics on industrial production.)

Government policy The restructuring of industry has moved ahead rather slowly in Croatia. In part, progress was stalled by the war until 1996, and in addition the govern- ment has been reluctant to pursue policies that would result in an increase in an already high rate of unemployment. A degree of caution in this respect is continuing, although in 1997 the government has signalled that it will speed up the pace of privatisation and will take a tougher line on restructuring. There is still much spare capacity in industry, providing scope for further increases in output. As industry seeks to become more efficient, there has been a steady increase in productivity, of 6.6% in 1995 and 11.3% in 1996, according to official estimates. However, considerable investment is required if industry is to continue to grow beyond the immediate post-war recovery.

Mining and semi-processing

Apart from oil and gas (see Energy provision), Croatia has few mineral re- sources, and mining is an insignificant sector. There is a very small amount of coal mining and, before independence, bauxite and silicon sand were the most important minerals produced. By 1994, however, production of these minerals had fallen to insignificant amounts.

Agriculture, forestry and fishing

Wartime disruption Types of agriculture in Croatia are varied, reflecting the country’s geographical diversity, with cultivated lowland regions, mountainous regions in which pas- ture predominates and coastal areas where viticulture, fruit and olive prod- uction are prominent. Communist Yugoslavia drew back from initial attempts at collectivisation in the 1950s, leaving most agricultural land either privately owned or belonging to large cooperatives, which are being restructured and privatised. Small farms predominate and in 1991 69% of farms were of 3 ha or less, and only 5.6% were over 8 ha.

The sector was severely disrupted by the war, with cultivable land falling from over 2m ha in 1991 to around 1.5m ha between 1992 and 1995. Of the key crops, wheat production fell to an average 0.8m tons in the five years 1992-96, from an average of 1.4m tons in the preceding five years, and the maize and sugarbeet crops experienced similar declines. Livestock numbers were also af-

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Croatia: Construction 47

fected. Thus Croatia, a traditional exporter of agricultural products, became a net importer. The problem was compounded by a scandal over the illegal export of wheat reserves which blew up in 1996, taking on significant political proportions. It emerged that officials of the State Reserve Board had been selling wheat intended for the domestic market at low prices, which was then exported at a profit, forcing the government to import supplies and ban all exports until the next crop was in. (Reference tables 10-12 give data on agricul- tural and livestock production.)

Post-war recovery The government has undertaken to increase production significantly and despite damage caused by bad weather, initial indications were that the 1997 wheat harvest had risen to around 884,000 tons, up from 741,000 tons in 1996 but still significantly lower than in pre-war years. The figures were helped by the fact that for the first time since the war, Eastern Slavonia was included in the Croatian harvest, with most of the crop reportedly reaching government silos. The government plans to increase the land under wheat by another 36% in 1998, in an attempt to get back towards pre-war levels of production. The agriculture ministry also plans to replenish livestock numbers, increasing the number of cattle by 145,000 by 2000, for example. The government planned to loan HRK481m to farmers in 1997 to boost meat production. The private dairy group, Lura, which controls 70% of the Croatian market, is importing animals to reduce dependence on milk imports.

Forestry With around one-third of Croatia’s territory covered by forests, wood products form an important industry, particularly of hard wood. By an act of parliament a public company, Hrvatske sume (Croatian forests), manages the exploitation and development of the whole forest area. At the end of 1996 the World Bank granted Croatia a $42m loan for replanting and protection of forests in coastal regions, which is in part aimed at aiding the tourism recovery.

Fisheries The fishing industry also suffered during the war, with the catch of sea fish falling from more than 40,000 tons in 1989 to 15,000 tons in 1995, while the freshwater catch fell from 12,000 tons to 5,000 over the same period. Initial estimates for 1996 showed only a slight improvement, although state-run firms reckon that unrecorded catches by private fishermen mean that the actual catch was much higher. The government hopes to develop the fishing industry, aim- ing to fulfil its commercial potential by emulating other Mediterranean coun- tries, especially in terms of monitoring which types of fish are best suited for exploitation in Croatia’s waters.

Construction

The war, with the destruction and population upheaval that it spawned, has brought the need for an extensive reconstruction programme, which has been one of the principal engines of growth in 1996 and 1997. War damage was concentrated in particular around the former front-line regions in Slavonia, the Dalmatian hinterland and the area around Dubrovnik. At an aid donors’ con- ference in March 1997, the reconstruction and development minister, Jure Radic, estimated the cost of material damage at around $27bn. The need to

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 48 Croatia: Merchandise trade

resettle refugees is giving a fresh impetus to the reconstruction effort, partic- ularly with the return of Eastern Slavonia to Croatian control in 1997 and the planned mass return of refugees to the region. The government is giving recon- struction a high priority and is taking the lead in promoting the reconstruction effort. There has also been foreign interest in the potential of the construction sector; the UK’s RMC International Cement has bought a majority stake in the country’s largest cement producer, Dalmacijacement of Split.

Official methods of collecting data on construction activity have varied in recent years but a combination of series gives a picture of the trend. Thus, the number of residential units completed dropped from more than 20,000 per year in the 1980s to between 8,000-10,000 between 1992 and 1995. Since then activity has begun to pick up, with the value of construction work put in place increasing from HRK783m in the first quarter of 1995 to HRK869m, in the first quarter of 1996 and HRK1,365m, in the first quarter of 1997. The number of employees in the sector has also picked up, to over 29,000 by April 1997 from about 24,000 and 25,000 in the same month in 1995 and 1996 respectively. (See Reference table 13 for data on construction activity.)

The external sector

Merchandise trade

Foreign trade by sector, 1996 ($ m) Main exports fob Main imports cif Chemical products 682 Chemical products 1,008 Textile products 653 Electrical equipment 813 Food products, beverages & tobacco 448 Machinery 775 Shipbuilding 410 Petroleum & gas 742 Petroleum products 353 Food, beverages & tobacco 601 Electrical equipment 338 Transport equipment 556 Timber & wood products 296 Textile products 338 Total incl others 4,512 Total incl others 7,788 Source: Mjesecno statisticko izvjesce.

Foreign trade has been Croatia experienced a sharp fall in foreign trade at the beginning of the 1990s, reoriented on account of the war. An apparent upturn in trade in 1992 is explained by the fact that from that year trade with the other countries of former Yugoslavia was counted as foreign trade. Croatia’s trade has since then reoriented, especially towards western Europe and the other transition economies of eastern Europe. Exports to the EU accounted for 51% of the total in 1996 and imports from the EU for 59%. Exports to the transition economies of eastern Europe and the former Soviet Union, excluding former Yugoslavia, accounted for 8% of the total and imports for 11%.

Exports to the countries of former Yugoslavia (mostly to Slovenia and BiH) in 1996 accounted for 27% of the total, while imports from the countries of former Yugoslavia (mainly from Slovenia) accounted for 11%. Trade with Slovenia has declined markedly as a proportion of the total during the 1990s,

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Croatia: Merchandise trade 49

with exports falling from 24% in 1992 to 14% in 1996 and imports from 20% to 10% over the same period, reflecting the overall reorientation of the trade of both countries away from former Yugoslavia over the period. However, exports to BiH have expanded significantly in recent years, as that country recovers from war, from 4% of the total in 1992 to 12% in 1996. Much of Croatia’s trade with BiH is with the bordering Croat-controlled areas in Hercegovina and western Bosnia. These regions are closely integrated with Croatia, economically as well as politically. The border is poorly controlled, and accurate figures for trade between Croatia and the Federation of BiH are lacking. (Reference tables 14 and 15 give historical data on the value of exports and imports by commod- ity groups.)

Croatia’s main trading partners are Italy, Germany and Slovenia, the last of which remains an important partner despite the decline in business in recent years. The high proportion of trade with these countries is in part due to extensive subcontracting in the important textiles and leather industries. (See Reference table 16 for historical trading patterns.)

Main trading partners, 1996

Exports to: % of total Imports from: % of total Italy 21.0 Germany 20.6 Germany 18.6 Italy 18.2 Slovenia 13.5 Slovenia 9.9 Bosnia and Hercegovina 12.2 Austria 7.7 Austria 4.4 UK 2.9 Russia 2.9 Russia 2.7 USA 2.0 USA 2.7 France 1.9 Czech Republic 2.7 Source: Mjesecno statisticko izvjesce.

The trade deficit widens Since 1995 the trade deficit has widened significantly, as imports have soared and export growth has been disappointing. In 1996 exports actually fell in comparison with 1995. This can in part be explained by the economic slow- down in the EU, with exports to the key German and Italian markets both declining in that year. In addition, the weakness of exports partly reflects the strength of the dollar; while exports rose by 11% in kuna terms in the first half of 1997, they showed little change in dollar terms, rising by only 2%. However, exporters have also complained bitterly that the high value of the kuna is rendering Croatian exports uncompetitive.

The surge in imports is unsurprising for a country in Croatia’s position, during a period of post-war recovery and reconstruction. The recovery has brought an increase in imports of investment goods, but the rise in imports also reflects the consumer boom which has followed the loosening of monetary policy since mid-1996, and which can be seen in increasing real wages and retail sales since late 1996. The government has expressed unconcern at the widening trade deficit, and has stated that it expects the deficit to continue to widen until 2000. However, the rapidity with which the deficit has continued to widen in the first half of 1997 has brought increased pressure for the government to take action. There is uncertainty over whether it should tighten policy, which should rein in imports but would risk pushing the level of the kuna up further,

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 50 Croatia: Invisibles and the current account

with consequential pain for exporters; or devalue the currency to help export- ers, which might undermine confidence in the kuna and bring a return to high inflation levels.

Invisibles and the current account

Current account, 1996 ($ m) Merchandise exports fob 4,512 Merchandise imports fob –7,009 Trade balance –2,497 Services balance 312 Net interest, profit & dividends –46 Net transfers 779 Current-account balance –1,452 Source: IMF, International Financial Statistics.

A wide current-account Croatia has, since before independence, relied on a strong surplus on invisibles, deficit— especially receipts from tourism and remittances from émigrés, to counter- balance its trade deficit and keep the current account in balance. With the outbreak of war, tourist arrivals plummeted but until 1994 the depressed state of the economy kept imports low, so that the current account remained nearly in balance. However, since the sharp increase in imports in 1995 a persistently wide current-account deficit has been an increasing cause for concern. In that year, which saw major military operations in both Croatia itself and in neighbour- ing BiH, tourism slumped even from the modest revival of 1994. Thus, with official figures showing the trade deficit increasing from $446m in 1994 to $2.1bn in 1995, a current-account deficit of $1.7bn, some 9.5% of GDP, opened up.

The tourism industry has recovered in 1996 and 1997 but is still far from reaching pre-war levels of activity. In 1996 the current-account deficit was put at $1.5bn, 7.6% of GDP. With a wide trade deficit expected to be a feature of Croatia’s economic performance for some time to come, the country is relying to a considerable degree on further increases in receipts from the tourism sector to provide a counterbalance.

—which may have been However, while the extent of the current-account deficit has been cause for exaggerated concern, there has been some speculation over whether the official data might in fact overstate it. An IMF staff country report of May 1997 (Croatia: Selected Issues and Statistical Appendix) laid particular stress on the high figure for net errors and omissions of $1,307m, some 8% of GDP, in 1995, up from $103m in 1994. The report suggested that the approach to assigning foreign exchange flows between categories of the capital and current accounts had been rather arbitrary, and that as a result current earnings had been understated. The IMF report expected that 1995 would be the peak year and that improved recording of current earnings would lead to a reduction in the overestimate of the current-account deficit. Indeed, the figure for net errors and omissions in 1996 was somewhat lower, although still high, at $824m. Therefore, although the extent of the current-account deficit may indeed have been overstated in 1995 and 1996, the IMF report would imply that this is becoming less of a factor.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Croatia: Capital flows and foreign debt 51

Thus the widening trade deficit in the early months of 1997 suggests that the current-account deficit is indeed a cause for considerable concern. (Reference table 17 gives historical data on the balance of payments.)

Capital flows and foreign debt

Foreign debt is In March 1995 Croatia reached an agreement with the Paris Club of creditor increasing— governments, according to which the country’s £1.54bn debt to governments would be paid over 14 years. In July 1996 an agreement was reached with the London Club of commercial creditors, fixing Croatia’s portion of former Yugoslavia’s commercial debt at 29.5% of the total. Zagreb issued new bonds totalling $1.46bn in exchange for its share of the debt. Croatia was in return released from its obligations for “joint and several liability” for the whole of former Yugoslavia’s $4.4bn debt, under Yugoslavia’s 1988 New Financing Agreement with the London Club.

Croatia’s total foreign debt rose to $4.8bn in 1996, from $3.7bn in 1995, in part due to the inclusion of the previously unallocated portion of former Yugosla- via’s debt. Still, at 13% of GDP, this does not present a servicing problem to Croatia. Of the total foreign debt at end-1996, $4.4bn was medium- and long- term. The country’s foreign debt is expected to continue to rise until the end of the decade and the central bank governor, Marko Skreb, has suggested that it might reach as high as $8bn by 1999. By May 1997 the total foreign debt had reached $5bn. Given the low level of domestic savings, Croatia is obliged to turn to foreign borrowing for investment. Since the end of the war investment in the reconstruction effort has predominated. A long as increasing indebted- ness is being used productively to boost sustainable growth, debt levels of the order projected should not present a problem. (See Reference table 18 for historical data on external debt.)

—as Croatia’s borrowing Croatia’s borrowing conditions improved markedly when it received invest- conditions have improved ment grade ratings from key ratings agencies early in 1997, placing it among the most highly regarded transition economies. Whether or not such confidence was warranted, it has helped Croatia in its increasing forays into international capital markets, notably a very successful $300m Eurobond issue in February 1997. The ratings, together with the bond issue and an IMF decision in March 1997 to award the country a three-year $486m extended fund facility (EFF), contributed to a perception abroad of Croatia as a sound investment destina- tion. This image has been slightly tarnished by the country’s more strained relations with the IMF since then (see Economic policy) and by concerns over the current account.

Foreign reserves and the exchange rate

Croatia’s foreign reserves position is on the whole fairly comfortable. The rapid increase in total foreign reserves in recent years, from $617m in 1993 to $2.4bn in 1996 is, however, unlikely to continue at such a rate. The exchange rate against the key D-mark has remained stable since the kuna was introduced in May 1994, following the implementation of the stabilisation programme in

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 52 Croatia: Foreign reserves and the exchange rate

October 1993, standing at an average HRK3.57:DM1 in June 1997. The kuna’s depreciation against the dollar in 1996 and 1997 is explained by the strength of the dollar. (Reference tables 19 and 20 give historical data on foreign reserves and exchange rates.)

There have been persistent complaints, especially from exporters and among academic circles that the kuna is overvalued and is damaging export compet- itiveness. The authorities have repeatedly insisted that they will not be moved to devalue the kuna, fearing that any such move would risk undermining confidence in the currency, leading to a return to an inflationary spiral. The widening of the current-account deficit has, however, heightened expectations that the government may, despite its protestations to the contrary, allow a depreciation.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Croatia: Sources of information 53

Appendices

Sources of information

National statistical sources The Central Bureau of Statistics produces a Statistical Yearbook (Statisticki lje- topis), which tends to come out after quite a long delay each year. A full set of national accounts, including the components of GDP, is not provided. A Monthly Statistical Report (Mjesecno statisticko izvjesce) is also provided, supply- ing much more timely and up-to-date data than the annual report. The National Bank of Croatia (NBH, the central bank) produces a monthly Bulletin, which contains an economic survey and statistical tables concentrating in particular on the banking sector, financial markets, monetary matters, inter- national economic relations and government finances. The NBH also produces a monthly volume of Main Statistical Indicators. As with many other countries in the region, there are some difficulties with the collection of data, particularly from the private sector; the large grey economy also presents a problem. There are thus some suspicions as to the reliability of some of the data provided. In particular, doubts have been expressed about the data on foreign trade (see Invisibles and the current account) and on prices.

Other useful sources of information and analysis include an independent quar- terly publication produced by Zagrebacka banka, Croatian Economic Forecast, which analyses and discusses trends in the Croatian economy.

International statistical The IMF, the World Bank, the OECD and the European Bank for Reconstruc- sources tion and Development (EBRD) are the main international sources of statistics on the Croatian economy.

IMF, International Financial Statistics; a recent IMF staff country report, Croatia: Selected Issues and Statistical Appendix, was published in May 1997

EBRD, Transition Report

OECD, Short-Term Economic Indicators for the Transition Economies

World Bank, World Development Indicators; Trends in Developing Economies; Global Development Finance (formerly World Debt Tables)

Select bibliography Marcus Tanner, Croatia, A Nation Forged in War, Yale University Press, 1997. This is really the only general history of Croatia in English, tracing Croatia’s history from medieval times. It is a detailed account, written by a journalist who is familiar with the country and its culture.

Susan Woodward, Balkan Tragedy: Chaos and Dissolution after the Cold War, Washington, 1995. This is the best scholarly account of the disintegration and collapse into war of former Yugoslavia. It traces the origins of Yugoslavia’s collapse back to the tensions and contradictions in Tito’s Yugoslavia, and includes an economic element in its account.

Misha Glenny, The Fall of Yugoslavia, third edition, London, 1996. This is an extremely readable account, which succeeds particularly well in portraying the

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 54 Croatia: Reference tables

atmosphere in Croatia and other republics in the period leading up to the war and during the war itself.

Laura Silber and Allan Little, The Death of Yugoslavia, London, 1995. A very detailed and well-researched chronological account of the break-up of Yugosla- via and the war that followed.

Reference tables

Reference table 1 Government finances (HRK m unless otherwise indicated) 1992 1993 1994 1995 1996 Revenue and grants 547.4 8,382.2 23,142.7 27,980.8 31,367.5 Current tax revenue 502.1 7,891.9 22,377.5 26,505.3 28,530.5 Current non-tax revenue 45.0 479.3 411.4 781.8 1,713.9 Capital revenue 0.3 11.0 353.8 593.7 1,123.1 Grants 0.0 0.0 0.0 100.0 0.0 Expenditure 564.6 8,403.4 22,282.8 28,475.6 30,972.8 Current expenditure 519.8 7,742.1 20,360.5 25,495.2 25,930.1 Capital expenditure 44.8 661.3 1,922.3 2,980.4 5,042.7 Lending minus repayments –9.7 –88.8 316.0 220.6 528.7 Balance –7.5 67.6 543.9 –715.4 –134 % of GDP –0.3 0.2 0.6 –0.9 –0.1 Source: National Bank of Croatia, Bulletin.

Reference table 2 Money supply and credit (% change, year on year; year-end) 1994 1995 1996 M1 111.9 24.6 37.9 M2 72.4 41.2 40.4 M4 73.8 30.6 49.1 Domestic credit 9.1 10.9 1.0 Sources: IMF, International Financial Statistics; National Bank of Croatia, Bulletin.

Reference table 3 Gross domestic product (market prices) 1992 1993 1994 1995 1996 Total (HRK m) At current prices 2,627.6 41,833.2 85,299.0 94,564.0 103,610.0 At constant (1990) prices 193.7 192.0 193.2 196.5 204.7 Real change (%) –11.7 –0.9 0.6 1.7 4.2 Per head (HRK) At current prices 549 8,753 18,348 20,254 23,055 At constant (1990) prices 40.5 40.2 41.6 42.1 45.6 Real change (%) –12.2 –0.7 3.5 1.2 8.3 Source: Mjesecno statisticko izvjesce.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Croatia: Reference tables 55

Reference table 4 Gross domestic product by sector (% of GDP; constant prices) 1992 1993 1994 1995 1996 Industry & mining 22.6 21.5 20.8 20.5 20.3 Agriculture, forestry & fisheries 10.5 11.0 10.7 10.5 10.3 Construction 3.0 2.6 2.6 2.6 3.2 Transport & communications 6.6 6.3 6.3 6.3 6.4 Trade 14.6 15.0 15.3 16.2 16.2 Other 42.7 43.6 44.3 43.9 43.6 Source: Mjesecno statisticko izvjesce.

Reference table 5 Prices and earnings (% change, year on year) 1992 1993 1994 1995 1996 Consumer prices (av) 665.0 1,518.0 98.0 2.0 3.5 Industrial producer prices 825.0 1,512.0 78.0 0.7 1.4 Real net earnings –43.5 –0.5 14.4 40.2 7.2 Source: Mjesecno statisticko izvjesce.

Reference table 6 Population

1991a 1992 1993 1994 1995 Based on natural changeb (’000) 4,784 4,782 4,779 4,777 4,776 Taking into account wartime upheavalc (’000) n/a n/a n/a 4,649 4,494 Birth rate per ’000 of populationb 10.8 10.5 10.8 10.9 11.2 Death rate per ’000 of populationb 11.5 11.6 11.4 11.1 11.3 Rate of natural increaseb –0.6 –1.1 –0.5 –0.2 –0.1 a Last census. b Estimates based on natural rates of change, supplied in the annual Statisticki ljetopis. c Estimates taking into account wartime upheaval, supplied in the monthly Mjesecno statisticko izvjesce.

Sources: Central Bureau of Statistics, Statisticki ljetopis; Mjesecno statisticko izvjesce.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 56 Croatia: Reference tables

Reference table 7 Labour force (annual average) 1992 1993 1994 1995 1996 % of % of % of % of % of ’000 total ’000 total ’000 total ’000 total ’000 total Manufacturing & mining 398 26.9 385 26.6 368 25.6 349 24.6 315 23.7 Agriculture & fishing 43 2.9 42 2.9 40 2.8 35 2.5 31 2.3 Forestry 11 0.7 11 0.8 11 0.8 11 0.8 10 0.8 Construction 76 5.1 66 4.6 59 4.1 59 4.2 62 4.7 Transport & communications 96 6.5 90 6.2 85 5.9 84 5.9 82 6.2 Trade 124 8.4 125 8.6 117 8.1 110 7.8 125 9.4 Hotels, restaurants & tourism 52 3.5 51 3.5 49 3.4 45 3.2 45 3.4 Other 360 24.3 339 23.4 333 23.1 334 23.5 342 25.7 Estimate for small businesses 28 1.9 40 2.8 63 4.4 72 5.1 –a –a Craft, trades & self-employed persons 123 8.3 130 9.0 149 10.4 169 11.9 183 13.7 Actively insured persons— farmers 170 11.5 168 11.6 164 11.4 149 10.5 134 10.1 Total domestic employment 1,481 100.0 1,447 100.0 1,437 100.0 1,417 100.0 1,330 100.0 Unemployed 267 15.3 251 14.8 243 14.5 241 14.5 261 16.4 Labour force 1,748 100.0 1,697 100.0 1,680 100.0 1,658 100.0 1,591 100.0 a The 1996 statistical survey covered more small businesses than previously, and those for which estimates were made were included in the analysis of people in paid employment.

Sources: Central Bureau of Statistics, Statisticki ljetopis; Mjesecno statisticko izvjesce.

Reference table 8 Energy production

1992 1993 1994 1995 1996 Crude oil (’000 tons) 1,743 1,729 1,577 1,500 1,469 Natural gas (m cu metres) 1,820 2,068 1,792 1,966 1,786 Coal (’000 tons) 120 105 96 75 64 Metallurgical coke (’000 tons) 419 421 277 – – Electric power (gwh) 8.9 9.4 8.7 9.1 11.5 hydroelectric 4.3 4.5 5.4 5.6 8.1 thermoelectric 4.5 5.0 3.3 3.5 3.3 Sources: Central Bureau of Statistics, Statisticki ljetopis; Mjesecno statisticko izvjesce.

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Reference table 9 Industrial production (’000 tons unless otherwise indicated) 1992 1993 1994 1995 1996 Crude steel 102 74 63 45 46 Cast iron & steel, semi-finished & finished products 31 33 30 26 28 Tankers (gross tons) 173 145 124 121 144 Cargo ships (gross tons) 120 78 45 37 51 Telephone & telegraph exchanges (’000 of receivers) 1,876 2,065 1,563 1,662 1,884 Compound fertilisers 717 483 554 548 516 Cement 1,768 1,683 2,055 1,708 1,842 Paper & cardboard, & paper & cardboard packaging 270 286 319 288 264 Ready-to-wear clothing (m sq metres) 35.7 36.4 34.3 32.4 28.6 Footwear (m pairs) 10.3 10.9 9.8 8.2 7.4 Livestock feed 648 646 526 516 474 Beer (’000 hl) 2,720 2,481 3,122 3,166 3,292 Sources: Central Bureau of Statistics, Statisticki ljetopis; Mjesecno statisticko izvjesce.

Reference table 10 Agricultural production (’000 tons) Annual average 1980-90 1991 1992 1993 1994 1995 1996 Wheat 1,241 1,496 658 887 750 877 741 Maize 2,334 2,388 1,358 1,672 1,687 1,736 1,883 Sugarbeet 1,188 1,244 525 537 592 691 906 Potatoes 669 659 480 508 563 692 666 Apples 81 64 62 62 47 51 75 Plums 74 37 62 60 36 38 72 Grapes 426 427 380 396 363 339 373 Sources: Statisticki ljetopis; Mjesecno statisticko izvjesce.

Reference table 11 Livestock numbers (’000 head) Annual average 1980-90 1991 1992 1993 1994 1995 1996 Cattle 911 757 590 589 519 494 461 Pigs 1,806 1,621 1,182 1,262 1,347 1,175 1,197 Sheep 731 753 539 525 444 453 427 Poultry 16,205 16,512 13,142 12,697 12,503 12,024 10,993 Sources: Statisticki ljetopis; Mjesecno statisticko izvjesce.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 58 Croatia: Reference tables

Reference table 12 Livestock production

Annual average 1980-90 1991 1992 1993 1994 1995 1996 Milk (m litres) 996 765 705 618 600 588 593 Eggs (m) 1,023 885 832 843 882 871 848 Wool (tons) 730 583 484 460 409 351 379 Honey (tons) 891 627 771 782 844 1,041 944 Sources: Statisticki ljetopis; Mjesecno statisticko izvjesce.

Reference table 13 Construction activity

1992 1993 1994 1995 1996 Value of construction projects put in place (HRK m) 139 2,517 4,993 5,965 8,670 Workers on building sites (av) 30,988 26,447 24,594 23,691 25,043 Source: Mjesecno statisticko izvjesce.

Reference table 14 Exports ($m unless otherwise indicated) 1992 1993 1994 1995 1996 Chemical products 727 599 606 850 682 % of total 15.8 15.3 14.2 118.3 15.1 Textile products 581 668 639 696 653 % of total 12.6 17.1 15.0 15.0 14.5 Food products, beverages & tobacco 452 388 410 421 448 % of total 9.8 9.9 9.6 9.1 9.9 Shipbuilding 441 162 303 260 410 % of total 9.6 4.1 7.1 5.6 9.1 Petroleum products 297 310 337 350 353 % of total 6.5 7.9 7.9 7.6 7.8 Electrical equipment 241 221 253 312 338 % of total 5.2 5.7 5.9 6.7 7.5 Timber & wood products 284 342 314 336 296 % of total 6.2 8.8 7.4 7.3 6.6 Total incl others 4,597 3,904 4,260 4,633 4,512 Sources: Statisticki ljetopis; Mjesecno statisticko izvjesce.

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Reference table 15 Imports ($m unless otherwise indicated; cif) 1992 1993 1994 1995 1996 Chemical products 801 652 630 952 1,008 % of total 18.0 14.0 12.0 12.7 12.9 Electrical equipment 278 406 513 815 813 % of total 6.2 8.7 9.8 10.9 10.4 Machinery 293 362 447 666 775 % of total 6.6 7.8 8.5 8.9 10.0 Petroleum & gas 347 377 477 709 742 % of total 7.8 8.1 9.1 9.4 9.5 Food, beverages & tobacco 398 316 417 598 601 % of total 8.9 6.8 8.0 8.0 7.7 Transport equipment 171 376 439 522 556 % of total 3.8 8.1 8.4 7.0 7.1 Textile products 206 211 265 324 338 % of total 4.6 4.5 5.1 4.3 4.3 Total incl others 4,461 4,666 5,229 7,510 7,788 Sources: Statisticki ljetopis; Mjesecno statisticko izvjesce.

Reference table 16 Main trading partners (% of total value) 1992 1993 1994 1995 1996 Exports to: Italy 19.8 21.2 21.3 23.7 21.0 Germany 16.8 22.9 22.1 21.5 18.6 Slovenia 23.9 18.2 13.1 13.1 13.5 Bosnia and Hercegovina 4.2 4.8 7.9 8.3 12.2 Austria 2.3 3.3 3.5 4.3 4.4 Former Soviet Union 3.4 4.4 4.1 4.0 3.8 USA 1.5 2.1 2.1 1.8 2.0 France 1.3 3.4 2.6 2.4 1.9 Countries of former Yugoslavia 32.0 24.7 22.7 22.9 27.0 EU 42.7 57.4 59.4 57.7 51.0 Imports from: Germany 17.2 21.2 21.2 20.1 20.6 Italy 17.1 18.9 19.0 18.2 18.2 Slovenia 19.6 15.3 10.3 10.7 9.9 Austria 4.3 6.7 6.8 7.7 7.7 Former Soviet Union 5.2 5.6 4.9 3.0 3.2 UK 1.5 1.9 3.4 6.1 2.9 USA 2.4 2.7 3.3 2.7 2.7 Czech Republic n/a 0.9 1.8 2.0 2.7 Countries of former Yugoslavia 23.1 16.6 10.9 11.3 11.1 EU 41.8 56.4 59.2 62.1 59.4 Sources: Statisticki ljetopis; Mjesecno statisticko izvjesce.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 60 Croatia: Reference tables

Reference table 17 Balance of payments ($ m) 1993 1994 1995 1996 Goods: exports fob 3,904 4,260 4,633 4,512 Goods: imports fob –4,200 –4,706 –6,759 –7,009 Trade balance –296 –466 –2,126 –2,479 Services: credit 1,807 2,293 2,569 3,496 Services: debit –1,642 –2,078 –2,708 –3,184 Income: credit 112 101 173 226 Income: debit –253 –225 –267 –272 Transfers: credit 555 602 815 930 Transfers: debit –179 –143 –169 –151 Current-account balance 104 103 –1,712 –1,452 Net direct investment 74 98 81 349 Other investment assets 44 242 50 142 Other investment liabilities –76 –120 362 480 Financial-account balance 42 220 493 971 Net errors & omissions 29 103 1,307 824 Overall balance 175 426 88 343 Source: IMF, International Financial Statistics.

Reference table 18 External debt ($m, unless otherwise indicated) 1993 1994 1995 1996a Public medium- & long-term 1,511 1,545 1,693 3,006 Private medium- & long-term 886 1,042 1,257 1,184 Total medium- & long-term debt 2,397 2,587 2,950 4,190 Official creditors 1,416 1,434 1,503 1,579 Bilateral 854 905 975 1,250 Multilateral 562 529 528 329 Private creditors 981 1,153 1,447 2,611 Short-term debt 107 242 492 451 IMF 20 127 221 206 Total debt stock 2,524 2,956 3,633 4,847 Ratios Debt/GDP 16.3 10.9 9.0 12.6 Debt/exports 32.8 23.2 20.9 27.6 a EIU estimates.

Sources: World Bank, Global Development Finance; EIU.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Croatia: Reference tables 61

Reference table 19 Foreign reserves ($m unless otherwise indicated) 1993 1994 1995 1996 Foreign exchange 616 1,405 1,895 2,314 SDRs 1 5 140 126 Total 617 1,410 2,035 2,440 Source: IMF, International Financial Statistics.

Reference table 20 Exchange rates (HRK per currency unit; annual averages) 1992 1993 1994 1995 1996 $ 0.27 3.58 6.00 5.23 5.43 DM 0.17 2.15 3.69 3.65 3.61 £ 0.45 5.37 9.17 8.25 8.48 L100 0.021 0.224 0.372 0.321 0.352 Source: National Bank of Croatia, Bulletin.

Editors: Peter Palmer; Joan Hoey All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997